China’s property market continues to struggle as one of the country’s largest developers, Country Garden Holdings Co., faces a potential default on its bonds. The company, which had total liabilities of 1.4 trillion yuan ($194 billion) at the end of last year, admitted to underestimating the market downturn and expects to post a net loss of up to 55 billion yuan for the first half of 2023. As a result, Country Garden Real Estate Group Co Ltd. has announced the suspension of trading in nearly a dozen onshore bonds starting Monday.
The liquidity crunch faced by Country Garden adds to concerns about the impact of the property sector on China’s economy, which is already slowing down. The Bloomberg index of the country’s junk dollar bonds hit its lowest level since last year on Thursday, reflecting investor fears about the state of China’s ailing property market. Regulators have been attempting to revive demand in the real estate sector, but measures such as easing mortgage rates have failed to stem the crisis, with home sales experiencing a significant decline in July.
The property sector’s struggles have created a vicious cycle, as a government campaign to reduce developers’ leverage caused housing purchases to slump, leading to a record number of defaults. Last year, protests broke out across cities as builders ran out of cash to complete and deliver apartments to buyers, prompting policymakers to intervene. While there have been positive policy signals since then, the property sector still requires more tangible and timely support for stabilization, according to industry experts.
The potential default by Country Garden comes at a time when signs of economic weakness are emerging, with consumer and producer prices falling in July. The economic recovery from the Covid-19 pandemic is primarily driven by consumption, making it crucial to rescue the real estate sector to avoid further pressure on the already-slowing economy.
The situation with Country Garden highlights the ongoing challenges faced by China’s property market and the need for effective policy support to stabilize the sector. The potential default could have significant implications for the country’s economy, adding to concerns about the overall growth outlook.
What are the challenges that the property market in China is currently grappling with, and why is the potential default by Country Garden Holdings Co. significant?
China’s property market continues to grapple with challenges as one of the country’s largest developers, Country Garden Holdings Co., faces the possibility of defaulting on its bonds. The company, which had a total debt of 1.4 trillion yuan ($194 billion) at the end of last year, admitted to underestimating the market downturn and anticipates a net loss of up to 55 billion yuan for the first half of 2023. Consequently, Country Garden Real Estate Group Co Ltd. has suspended trading on nearly a dozen onshore bonds starting Monday.
The liquidity crunch faced by Country Garden further compounds concerns about the property sector’s impact on China’s already slowing economy. The Bloomberg index of the country’s low-rated dollar bonds hit its lowest level since last year on Thursday, reflecting investor anxieties over the state of China’s struggling property market. Despite attempts by regulators to stimulate demand in the real estate sector, measures such as reducing mortgage rates have failed to quell the crisis, resulting in a significant decline in home sales in July.
The struggles in the property sector have created a vicious cycle. A government campaign to reduce developers’ debt burdens caused housing purchases to plummet, leading to a record number of defaults. Last year, protests erupted as builders ran out of funds to complete and deliver apartments to buyers, prompting policymakers to intervene. Although positive policy signals have been sent since then, industry experts argue that the property sector still requires more substantial and timely support for stabilization.
The potential default by Country Garden comes at a time when signs of economic weakness are emerging, with consumer and producer prices falling in July. As the economic recovery from the Covid-19 pandemic heavily relies on consumption, rescuing the real estate sector becomes crucial to avoid further pressure on the already decelerating economy.
The situation with Country Garden underscores the persistent challenges faced by China’s property market and emphasizes the need for effective policy support to stabilize the sector. The potential default could significantly impact the country’s economy, intensifying concerns about the overall growth outlook.
