BEIJING — Two years after Evergrande’s debt troubles, worries about China’s real estate sector are coming to the forefront again.
Country Garden, one of the largest non-state-owned developers by sales, has reportedly missed two coupon payments on dollar bonds that were due Sunday. Citing the firm, Reuters said the bonds in question are notes due in February 2026 and August 2030.
Country Garden did not immediately respond to CNBC’s request for comment on the reports.
Meanwhile, Dalian Wanda saw its senior vice president Liu Haibo taken away by police after the company’s internal anti-corruption probe, Reuters reported Tuesday, citing a source familiar with the matter. Dalian Wanda did not immediately respond to a CNBC request for comment.
Hong Kong-listed shares of Country Garden closed more than 1.7% lower on Wednesday, after sharp declines earlier in the week.
“With China’s total home sales in 1H23 down year-on-year, falling home prices month-on-month across the past few months and faltering economic growth, another developer default (and an extremely large one, at that) is perhaps the last thing the Chinese authorities need right now,” according to Sandra Chow, co-head of Asia Pacific Research for CreditSights, which is owned by Fitch Ratings.
We are concerned that as big cities lift local property restrictions, it will drain up demand in low tier cities, which account for 70% of national new home sales volume…
Nomura
An investor relations representative for Country Garden didn’t deny media reports on the missed payments and didn’t clarify the company’s payment plans, Chow and a team said in a note late Tuesday.
The report noted negative market sentiment spillover to other non-state-owned developers such as Longfor. Shares of Longfor closed about 0.8% higher Wednesday in Hong Kong after trading more than 1% lower during the day.
“Overall homebuyer sentiment is likely to also suffer as a result,” the analysts said.
Home prices in focus
China’s massive real estate market has remained sluggish despite recent policy signals. In late July, its top leaders indicated a shift toward greater support for the real estate sector, paving the way for local governments to implement specific policies.
Uncertainties remain around the sensitive topic of home prices.
“We are concerned that as big cities lift local property restrictions, it will drain up demand in low tier cities, which account for 70% of national new home sales volume and are the real drivers of commodity demand and construction activity,” Nomura analysts said in an Aug. 4 report.
“We are also concerned that merely easing restrictions on existing home sales without lifting restrictions on home purchase may add supply and depress home prices,” the report said.
For the last several years, Chinese authorities have attempted to curb debt-fueled speculation in the country’s massive — and hot — real estate market. In 2020, Beijing cracked down on developers’ high reliance on debt for growth.
With that faltering confidence, the private property sector will likely remain a drag on the country’s growth for the rest of the year.
Rhodium Group
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.
“After watching developers default and fail to complete housing for other families, few Chinese families are willing to shell out in advance for new housing,” Rhodium Group analysts said in a note this week. “With that faltering confidence, the private property sector will likely remain a drag on the country’s growth for the rest of the year.”
The analysts pointed out that new starts in residential construction have fallen for 28 months straight.
Real estate and related industries have accounted for about a quarter of China’s economy.
Redmond Wong, market strategist at Saxo Markets Hong Kong said Country Garden will find it “very difficult, if not impossible” to refinance — and other Chinese developers would face difficulties raising money as a result, especially offshore.
He pointed out that since China started its deleveraging campaign in 2016, it is very unlikely the state would step in to bail out real estate developers. “The most likely way for Country Garden or Chinese developers in similar situation to avoid defaults will be asset sales,” Wong added.
State-owned developers stand out
China’s state-owned developers have generally fared better in the latest real estate slump.
Country Garden has had the worst sales performance so far this year among China’s 10 largest real estate developers, with a 39% year-on-year decline in sales, according to data published by E-House Research Institute.
Vanke was the only other one of the 10 developers to post a year-on-year sales decline for January to July period, down 9%, the research showed.
The other names were mostly state-owned, such as Poly Development, which ranked first with a 10% sales increase during that time, according to the analysis.
But that’s had little impact on home prices overall.
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, based on a Beike Research Institute data sample of 25 large cities.
The July level is 13.4% below a historical high two years ago, the Nomura report said.
The seven-day moving average of new home sales as of Aug. 6 was down by 49% versus 2019, according to Nomura. That’s worse than the 34.4% decline for the prior week.
Far more Chinese household wealth has been locked up in property than is the case in many other countries.
Tight capital controls also make it difficult for people in China to invest outside the country, while the local financial markets are less mature than those of developed countries.
“Right now people are reassessing what in the future will be a good investment,” Liqian Ren, leader of quantitative investment at WisdomTree, said in an interview last week.
“Since the beginning of last year, people are starting to realize real estate prices are not going up,” Ren said. “I don’t think it’s the lack of confidence. For many people they still have money in the bank.”
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.
