For the second time in just over two months, Country Garden has warned investors that it could default on its $190 billion debt in a reminder that China’s real estate crisis is far from over.
The company said it had not made a repayment of 470 million Hong Kong dollars ($60 million) due to overseas bondholders by Tuesday.
It said sales of apartments fell by 81% in September, compared with the same month last year.
Country Garden “expects that it will not be able to meet all of its offshore payment obligations when due or within the relevant grace periods,” itsaid in a Tuesday filing to the Hong Kong Stock Exchange.
“Such non-payment may lead to relevant creditors of the Group demanding acceleration of payment of the relevant indebtedness owed to them or pursuing enforcement action,” it warned.
The deepening woes at Country Garden offer more evidence that China’s all-important property market is languishing in a persistent downturn, which poses a major threat to the country’s growth prospects. Analysts say it could take years to climb out of this crisis, as housing demand is waning because of an aging population.
The risks were underscored when a group of creditors of Evergrande, which defaulted in 2021 and is trying to fend off liquidation, said in a statement sent to CNN that the developer could suffer an “uncontrollable collapse” because of “botched” efforts to restructure its vast debts.
Such a scenario could hit households and further undermine confidence in the battered real estate market, setting back Beijing’s efforts to revive the sector.
Massive liabilities
Country Garden reported a record $7 billion loss for the first half of 2023 In late August and said it “may default” if its financial performance continues to deteriorate.
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As of the end of June, Country Garden had around $15 billion worth of debt due by June 2024, according to the most recent information released by the company. Its total liabilities were around 1.36 trillion yuan ($190 billion).
If it ends up defaulting, its debts would need to be restructured and its creditors could present a winding-up petition against the company.
Country Garden said it had hired advisers to evaluate the company’s liquidity conditions and formulate a “holistic solution” intended to address its current offshore debt risk and enable it to restore business operations.
It didn’t elaborate about the possible plan, but said China International Capital Corporation Hong Kong Securities and Houlihan Lokey (China) would serve as its financial advisers. Sidley Austin would be its legal adviser.
China’s economy will be hobbled for years by the real estate crisis
Country Garden was one of the few major private developers still standing after a liquidity crisis engulfed China’s property sector two years ago. But things have taken a turn in the past few months.
In early August, the company acknowledged that it was facing its “biggest difficulty” since its establishment in 1992, citing deteriorating sales and a difficult refinancing environment. The news shocked investors, triggering a broad sell-off in China’s property stocks.
The fact that a once seemingly bulletproof firm was struggling with a cash crunch underscored how entrenched the property meltdown had become. It also highlighted the challenges Beijing faces to contain the problem.
Significant uncertainty
On Tuesday, Country Garden reported that its sales plunged further in September, down 81% from a year earlier. That followed a 72% drop in August and a 60% fall in July.
The company faces “significant uncertainty” regarding asset disposals, and its liquidity position is expected to remain “very tight,” it said.
It plans to “cooperate and engage in dialogue with all creditors to reach a feasible solution as soon as practicable,” it added.
China takes aim at real estate crisis with new measures to boost economy
If confirmed, a debt restructuring for Country Garden would be the latest for a Chinese home builder.
Evergrande, the world’s most indebted developer and once China’s second largest, was declared to be in default in late 2021. Afterward, the government intervened to prevent a disorderly collapse of the company and appointed a risk management committee to guide its restructuring.
In March 2023, the company unveiled a long-awaited plan to restructure more than $19 billion of its offshore debt and has been seeking creditor approval for it since then.
But those plans were thrown into disarray six months later when Evergrande surprised investors by announcing that its founder and chairman Xu Jiayin had been detained by the Chinese authorities on suspicion of crimes, casting serious doubt over the future of the company.
Sunac China, which was China’s third largest homebuilder in 2021, has also proposed to overhaul its liabilities after struggling to make payments.
In March, it unveiled a $9 billion restructuring plan after reaching agreements with a group of key bondholders. Last week, it won approval from a Hong Kong court for the plan, the first for a major Chinese developer that could provide a template for its industry peers.
TORONTO – One expert predicts Ottawa‘s changes to mortgage rules will help spur demand among potential homebuyers but says policies aimed at driving new supply are needed to address the “core issues” facing the market.
The federal government’s changes, set to come into force mid-December, include a higher price cap for insured mortgages to allow more people to qualify for a mortgage with less than a 20 per cent down payment.
The government will also expand its 30-year mortgage amortization to include first-time homebuyers buying any type of home, as well as anybody buying a newly built home.
CIBC Capital Markets deputy chief economist Benjamin Tal calls it a “significant” move likely to accelerate the recovery of the housing market, a process already underway as interest rates have begun to fall.
However, he says in a note that policymakers should aim to “prevent that from becoming too much of a good thing” through policies geared toward the supply side.
Tal says the main issue is the lack of supply available to respond to Canada’s rapidly increasing population, particularly in major cities.
This report by The Canadian Press was first published Sept. 17,2024.
OTTAWA – The Canadian Real Estate Association says the number of homes sold in August fell compared with a year ago as the market remained largely stuck in a holding pattern despite borrowing costs beginning to come down.
The association says the number of homes sold in August fell 2.1 per cent compared with the same month last year.
On a seasonally adjusted month-over-month basis, national home sales edged up 1.3 per cent from July.
CREA senior economist Shaun Cathcart says that with forecasts of lower interest rates throughout the rest of this year and into 2025, “it makes sense that prospective buyers might continue to hold off for improved affordability, especially since prices are still well behaved in most of the country.”
The national average sale price for August amounted to $649,100, a 0.1 per cent increase compared with a year earlier.
The number of newly listed properties was up 1.1 per cent month-over-month.
This report by The Canadian Press was first published Sept. 16, 2024.
MONTREAL – Two Quebec real estate brokers are facing fines and years-long suspensions for submitting bogus offers on homes to drive up prices during the COVID-19 pandemic.
Christine Girouard has been suspended for 14 years and her business partner, Jonathan Dauphinais-Fortin, has been suspended for nine years after Quebec’s authority of real estate brokerage found they used fake bids to get buyers to raise their offers.
Girouard is a well-known broker who previously starred on a Quebec reality show that follows top real estate agents in the province.
She is facing a fine of $50,000, while Dauphinais-Fortin has been fined $10,000.
The two brokers were suspended in May 2023 after La Presse published an article about their practices.
One buyer ended up paying $40,000 more than his initial offer in 2022 after Girouard and Dauphinais-Fortin concocted a second bid on the house he wanted to buy.
This report by The Canadian Press was first published Sept. 11, 2024.
