Quentin Webb The government’s restrictions on borrowing in China’s property sector have helped to reduce home sales, increase corporate bond yields, and reduce confidence among investors and potential home buyers. While sentiment has improved marginally over the past few days, the giant China Evergrande Group and several smaller peers have already fallen into default and casualties may continue to rise. Here the market stands as of 2022, which is under work.
sales have fallen
Contract sales, or the value of new contracts that developers signed with home buyers, dropped sharply in the last few months of 2021, with many property firms missing their annual sales targets. According to data from China Real Estate Information Corp., contract sales for the top 100 developers fell 9% during the past year, reflecting a decline in both prices and volume. Official data shows that new starts by developers fell more than 11% in 2021 and property investment stopped in the later part of the year.
Dollar-bond defaults have risen
Chinese developers who collectively owe billions of dollars in international bonds have failed to repay investors as promised. Some have not paid interest or principal, while others have prompted bondholders to swap debt for less attractive new securities. This process, known as a distressed debt exchange, is often equated to default by rating companies and investors.
The bond market is separating the weak from the strong
Investors have dumped the bonds of financially vulnerable developers like Evergrande, raising doubts that these loans will be repaid in full. Selloffs have fed a vicious cycle, closing the market for all-new bond sales and thus making it more likely that many struggling developers will default on loans they cannot refinance.
Some strong developers with state backing, such as China Vanke Company, have not been relatively complete. But volatility has spread, and large real-estate groups with comparatively high credit ratings that do not have state backing, such as Shimao Group Holdings Ltd., and most recently Country Garden Holdings Co., have also seen large fluctuations in their bond prices. Have seen the ups and downs. recently.
and property stocks have crashed
Debt-market malfeasance is making headlines in part because Chinese assets make up such a large part of the Asian junk-bond market and because investors are eager to see how foreign bondholders are treated. But the sudden slowdown has also affected the heavy selling in shares of several Chinese developers listed in Hong Kong.
On the bright side, the decline in home prices looks modest.
Recent official figures show that the prices of new homes have begun to decline, in their first decline since the beginning of 2015, although the decline eased in December. Data from 70 major cities shows that the prices of old houses are also coming down. Some local governments have initiated measures to raise prices, including warning against increasing subsidies and offering developers large discounts.
…and some of the lending figures seem to be improving
Chinese officials have softened some of their rhetoric on the property, suggesting they are wary of rounding out their attack on a key driver of Chinese growth. The People’s Bank of China recently cut some key interest rates, including the five-year lending rate, commonly used as a reference to pricing mortgages, as part of a wider change to ease policy. is done. The central bank has begun detailing the monthly increase in mortgage loans – which totaled 401 billion yuan, or about $63 billion in November – apparently to reassure markets that both supply and demand for home loans remain healthy. Huh. Comprehensive home loan data tells a similar story.
still the pain is not over
Developers have a mountain of offshore debt to refinance in the first few months of this year. While heavyweight Country Garden was recently able to sell convertible bonds, selling new debt or convertible bonds will not be an option for most companies. And regulators have made it harder for companies to redeploy cash that sits within individual projects, as most of them were provided by home buyers as prepayment for unfinished units. Recent reports that China may ease access to that cash for developers have led to a modest correction in stock and bond prices, but some analysts and investors doubt how much of a difference it will make in practice.
For companies that can’t quickly find alternative sources of funding—such as selling assets or obtaining new loans or equity funding from wealthy controlling shareholders—the next stop may be either outright default, or debt to bondholders. Might force swap in.
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