Renewed Default Fears Shake China's Real Estate Market

China's Real Estate Market Faces Renewed Default Concerns

Country Garden's Missed Payments

Two years after the debt crisis of Evergrande, fears about China's real estate sector are resurfacing. Country Garden, one of the largest privately-owned developers in terms of sales, has reportedly missed two coupon payments on dollar bonds that were due on a recent Sunday. According to Reuters, the bonds in question are notes due in February 2026 and August 2030. Country Garden has yet to respond to requests for comment on these reports.

Dalian Wanda's Internal Anti-Corruption Probe

In a related development, Dalian Wanda's senior vice president Liu Haibo was taken into police custody following an internal anti-corruption investigation, as reported by Reuters. Dalian Wanda has not responded to requests for comment on this matter. This news, along with Country Garden's missed payments, has led to a decline in the Hong Kong-listed shares of Country Garden.

Impact on the Real Estate Market

China's total home sales in the first half of 2023 decreased year-on-year, with falling home prices month-on-month over the past few months and a slowing economic growth. Another developer default, particularly a large one, is the last thing Chinese authorities need at this juncture, according to Sandra Chow, co-head of Asia Pacific Research for CreditSights.

Concerns over Lifting Local Property Restrictions

There are concerns that if major cities lift local property restrictions, it could reduce demand in lower-tier cities, which account for 70% of national new home sales volume. An investor relations representative for Country Garden did not deny media reports on the missed payments and did not clarify the company's payment plans. The report also noted a negative market sentiment spillover to other privately-owned developers such as Longfor.

Homebuyer Sentiment and Policy Shifts

Despite recent policy signals indicating greater support for the real estate sector, China's massive real estate market has remained sluggish. The lifting of restrictions on existing home sales without lifting restrictions on home purchases could potentially increase supply and depress home prices.

Attempts to Curb Debt-Fueled Speculation

For several years, Chinese authorities have attempted to curb debt-fueled speculation in the country's massive real estate market. In 2020, Beijing cracked down on developers' high reliance on debt for growth. Highly indebted Evergrande defaulted in late 2021, followed by a few others. This has led to a faltering confidence in the private property sector, which is likely to remain a drag on the country's growth for the rest of the year.

Impact on Residential Construction and Home Prices

Last year, many people halted mortgage payments after a delay in receiving the homes they had bought. Most apartments in China are sold before they are completed. The analysts pointed out that new starts in residential construction have fallen for 28 months straight. Nomura pointed out in a separate report that average existing home prices dropped by 2% in July from the prior month, worse than the 1.4% decline in June.

Future Investment in the Real Estate Market

Conclusion: The Implications for New Businesses

The renewed default concerns in China's real estate market could have significant implications for new businesses, particularly those in the real estate and construction sectors. The missed payments by Country Garden and the internal anti-corruption probe at Dalian Wanda highlight the potential risks and uncertainties in this market. New businesses need to be aware of these risks and prepare accordingly. Furthermore, the decrease in home sales and falling home prices could pose challenges for businesses in the real estate sector. However, it could also present opportunities for businesses that can offer innovative solutions to these challenges. The Chinese authorities' attempts to curb debt-fueled speculation in the real estate market and the potential lifting of local property restrictions could also impact new businesses. These policy shifts could create a more challenging business environment, but they could also lead to new opportunities for businesses that can adapt to these changes. Finally, the faltering confidence in the private property sector and the impact on residential construction and home prices could affect the demand for new businesses' products and services. However, businesses that can offer value in this challenging market could stand to benefit. In conclusion, while the renewed default concerns in China's real estate market pose challenges, they also present opportunities for new businesses that can adapt and innovate in this changing market environment. Article First Published at: https://www.cnbc.com/2023/08/10/china-property-market-roiled-by-default-fears-country-garden-spooks-investors.html Brought to you by ChatGPT for www.BusinessFormation.io