China's real estate market roiled by default fears again, as Country Garden spooks investors

BEIJING — Two years aft Evergrande's indebtedness troubles, worries astir China's existent property assemblage are coming to the forefront again.

Country Garden, 1 of the largest non-state-owned developers by sales, has reportedly missed 2 coupon payments connected dollar bonds that were owed Sunday. Citing the firm, Reuters said the bonds successful question are notes owed successful February 2026 and August 2030.

Country Garden did not instantly respond to CNBC's petition for remark connected the reports.

Meanwhile, Dalian Wanda saw its elder vice president Liu Haibo taken distant by constabulary aft the company's interior anti-corruption probe, Reuters reported Tuesday, citing a root acquainted with the matter. Dalian Wanda did not instantly respond to a CNBC petition for comment.

Hong Kong-listed shares of Country Garden closed much than 1.7% little connected Wednesday, aft crisp declines earlier successful the week.

"With China's full location income successful 1H23 down year-on-year, falling location prices month-on-month crossed the past fewer months and faltering economical growth, different developer default (and an highly ample one, astatine that) is possibly the past happening the Chinese authorities request close now," according to Sandra Chow, co-head of Asia Pacific Research for CreditSights, which is owned by Fitch Ratings.

An capitalist relations typical for Country Garden didn't contradict media reports connected the missed payments and didn't clarify the company's outgo plans, Chow and a squad said successful a enactment precocious Tuesday.

The study noted antagonistic marketplace sentiment spillover to different non-state-owned developers specified arsenic Longfor. Shares of Longfor closed astir 0.8% higher Wednesday successful Hong Kong aft trading much than 1% little during the day.

"Overall homebuyer sentiment is apt to besides endure arsenic a result," the analysts said.

China's monolithic existent property marketplace has remained sluggish contempt caller argumentation signals. In precocious July, its apical leaders indicated a shift toward greater enactment for the existent property sector, paving the mode for section governments to instrumentality circumstantial policies.

Uncertainties stay astir the delicate taxable of location prices.

"We are acrophobic that arsenic large cities assistance section spot restrictions, it volition drain up request successful debased tier cities, which relationship for 70% of nationalist caller location income measurement and are the existent drivers of commodity request and operation activity," Nomura analysts said successful an Aug. 4 report.

"We are besides acrophobic that simply easing restrictions connected existing location income without lifting restrictions connected location acquisition whitethorn adhd proviso and depress location prices," the study said.

For the past respective years, Chinese authorities person attempted to curb debt-fueled speculation successful the country's monolithic — and blistery — existent property market. In 2020, Beijing cracked down connected developers' precocious reliance connected indebtedness for growth.

Highly indebted Evergrande defaulted successful precocious 2021, followed by a fewer others.

Last year, many radical halted owe payments aft a hold successful receiving the homes they had bought. Most apartments successful China are sold earlier they are completed.

"After watching developers default and neglect to implicit lodging for different families, fewer Chinese families are consenting to ammunition retired successful beforehand for caller housing," Rhodium Group analysts said successful a enactment this week. "With that faltering confidence, the backstage spot assemblage volition apt stay a resistance connected the country's maturation for the remainder of the year."

The analysts pointed retired that caller starts successful residential operation person fallen for 28 months straight.

Real property and related industries person accounted for astir a 4th of China's economy.

Redmond Wong, market strategist astatine Saxo Markets Hong Kong said Country Garden volition find it "very difficult, if not impossible" to refinance — and different Chinese developers would look difficulties raising wealth arsenic a result, particularly offshore.

He pointed retired that since China started its deleveraging run successful 2016, it is very improbable the authorities would measurement successful to bail out existent property developers. "The astir apt mode for Country Garden oregon Chinese developers successful akin concern to debar defaults volition beryllium plus sales," Wong added.

China's state-owned developers person mostly fared amended successful the latest existent property slump.

Country Garden has had the worst income show truthful acold this twelvemonth among China's 10 largest existent property developers, with a 39% year-on-year diminution successful sales, according to data published by E-House Research Institute.

Vanke was the lone different 1 of the 10 developers to station a year-on-year income diminution for January to July period, down 9%, the probe showed.

The different names were mostly state-owned, specified arsenic Poly Development, which ranked archetypal with a 10% income summation during that time, according to the analysis.

But that's had small interaction connected location prices overall.

Nomura pointed retired successful a abstracted study that mean existing location prices dropped by 2% successful July from the anterior month, worse than the 1.4% diminution successful June, based connected a Beike Research Institute information illustration of 25 ample cities.

The July level is 13.4% beneath a humanities precocious 2 years ago, the Nomura study said.

The seven-day moving mean of caller location income arsenic of Aug. 6 was down by 49% versus 2019, according to Nomura. That's worse than the 34.4% diminution for the anterior week.

Far much Chinese household wealthiness has been locked up successful spot than is the lawsuit successful galore different countries.

Tight superior controls besides marque it hard for radical successful China to put extracurricular the country, portion the section fiscal markets are little mature than those of developed countries.

"Right present radical are reassessing what successful the aboriginal volition beryllium a bully investment," Liqian Ren, person of quantitative concern at WisdomTree, said successful an interrogation past week.

"Since the opening of past year, radical are starting to recognize existent property prices are not going up," Ren said. "I don't deliberation it's the deficiency of confidence. For galore radical they inactive person wealth successful the bank."

— CNBC's Hui Jie Lim contributed to this report.