China’s Property Developers’ Shares and Bonds Plummet as Concerns about the Sector Deepen

China’s real estate market is facing deepening concerns as shares and bonds of property developers slump to eight-month lows. The sector’s worries have been exacerbated by cash crunches at major developers, Country Garden and Dalian Wanda, indicating that even the largest players are experiencing funding trouble. These companies were once instrumental in driving China’s economy, but now doubts are growing about the possibility of official support. Investors are not expecting any aid to be directed towards shareholders. Country Garden shares fell by 6%, reaching an eight-month low, while shares in its services arm plummeted by 16%. The company’s dollar bonds also fell below a fifth of their face value. Its rival, Longfor, saw a 10% drop in shares. Even an asset sale at Wanda failed to revive bond prices as investors were hesistant to determine if the cash would actually reach bondholders. The property development sector in China has come to a standstill due to a government crackdown on debt and dwindling public confidence, leading to builders being unable to sell apartments or refinance their dues. Guidelines published on urban redevelopment were seen as insufficient to address the problems faced by the sector, leaving investors hoping for more from an upcoming Politburo meeting. The struggles faced by major developers highlight the depth of the crisis. On Monday, an index of mainland developers fell by 5.5%, signaling its worst session of 2022. Cash flow issues have emerged for Country Garden, which has thousands of projects in nearly 300 Chinese cities. The company’s move to refinance a loan facility dating back to 2019 has unsettled investors, especially in light of recent ratings downgrades and defaults in the industry. On Monday, the company’s onshore-traded bonds plunged to less than half of their face value, while dollar bonds due in 2025 and 2031 fell to less than 20 cents on the dollar. China’s largest commercial developer, Wanda, is also facing cash crunches, with one of its subsidiaries struggling to make a delayed coupon payment due before the end of July. Wanda managed to sell part of another subsidiary to streaming firm China Ruyi for $320 million, which is expected to assist in repaying a separate $400 million bond. State-backed developer Greenland Holdings also missed repayments this month, while Sino-Ocean Group proposed extending the terms for a 2 billion yuan ($278 million) bond due in August. These new troubles have halted a nascent market rally that began when China lifted COVID-19 controls and opened its borders. Evergrande, the poster-child of the sector’s funding stress in 2021, is currently undergoing restructuring, with the process being deliberated in courts in Hong Kong and the Cayman Islands. Additionally, property sales are experiencing a new slowdown. Fitch Ratings has stated that distressed Chinese property developers may benefit from bond restructurings, but most will continue to face repayment difficulties if home sales fail to recover over a sustained period. The market turmoil in China’s real estate sector is a cause for concern, not only for developers but also for the overall health of the country’s economy.