Chinese property stocks are heading toward a 14-year low, as slumping home sales and increasing debt problems hitting major developers continue to pile stress on the sector.
On Wednesday, a gauge of developer shares by Bloomberg dropped by up to 1.2%, putting it on track for its lowest close since 2009. The declines in the index were led by Times China Holdings Ltd. and China Evergrande Group.
The selloff occurred as Country Garden Holdings Co. the largest developer in China, had entered the final hours to make a deadline for an interest payment on a bond, and avoid enduring its first default on a dollar bond. Although a recent set of Chinese economic data was upbeat overall, a continued downturn in property investment and sales, within it, was seen by observers as highlighting the need for the government to take stronger measures to support the sector to avoid a worsening of the unprecedented housing crisis.
Patrick Wong, a Bloomberg Intelligence analyst, said, “The market is turning more bearish with Country Garden’s potential dollar bond default,” noting the industry’s future “really depends on any further easing measures to support the housing market.”
Presently the epicenter of the Chinese property crisis, Country Garden was required to pay a $15.4 million coupon on a dollar bond by October 17th-18th, following the expiration of a 30-day grace period. According to Reuters, one bondholder reported that the grace period expired without the payment being rendered, meaning Country Gardens has joined a raft of other Chinese developers which have been unable to meet financial obligations. Over the past few weeks, the company has missed other offshore payments, however those obligations have not yet seen their grace periods expire.
Meanwhile, China Evergrande is now facing the once-unimaginable possibility of undergoing an asset liquidation on October 30th, when there will be a key court hearing. The struggling real estate giant had been trying to assemble a restructuring plan to repay creditors, an option which will be thrown into chaos by a ruling ordering the company to wind up its operations.
According to the latest data, home sales in China fell 3.2% year over year in the first three quarters, as property investment plummeted 9.1%, more than analysts had expected.
The world’s second largest economy had expanded 4.9% year over year during the July to September period, exceeding the expectations of analysts for a 4.5% gain. However the crisis in the property sector, which is responsible for 25% of the GDP of the second largest economy in the world, appears to be accelerating.
