Explainer - Country Garden: How bad is China's property crisis?
By Clare Jim
HONG KONG (Reuters) — The debt crisis at Country Garden, China's largest property developer before this year and once considered a financially sound company, has triggered fresh contagion fears just two years after China Evergrande Group defaulted.
WHAT COULD HAPPEN NEXT?
Since the sector's debt crisis unfolded in mid-2021, companies accounting for 40% of Chinese home sales have defaulted, most of them private property developers.
It has led to many unfinished homes, unpaid suppliers and creditors who are not only financial institutions but also ordinary folks who bought wealth management products linked to trust financing.
Many offshore bonds now trade at low double- or even single-digit cents on the dollar, and their share values have shrunk 90%. There is very little liquidity left in both the equity and debt markets as investors and creditors avoid the sector.
With home sales already very weak, the debt crisis could delay the prospect of a recovery of both the property market and the broader Chinese economy, in which real estate is a core pillar.
S&P Global (NYSE:SPGI) Rating said on Wednesday it could adjust its forecast for property sales to a «descending staircase» figure from an «L» shaped recovery, if Country Garden officially defaulted.
Home-buyers could become even more wary of private developer brands, and home prices in many areas could come under greater pressure if Country Garden resorted to fire sales to raise cash.
Local government could tighten more the escrow accounts where presale funds are kept in order to ensure homes can be completed and delivered — a top priority set by Beijing.
These would in turn squeeze the sector more and lead to additional defaults even among state-backed
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