Evergrande’s debt default last year, kicked off China’s housing market slump that just continues to worsen as widespread COVID-19 curbs weaken buyer confidence and market demand.
With tumbling sales, short-term debts, and a lack of offshore refinancing, Chinese property developers are facing a liquidity crisis.
However, before disclosing the default, the firm revealed on June 16 that it was under “unprecedented liquidity pressure.”
According to China’s National Statistics Bureau, its national housing prosperity index has decreased from 101.18 last May to 95.60 this May, a significant decrease compared to previous years.
Meanwhile, property sales, investment, and new construction activities declined significantly in the first five months of 2022.
Property sales fell 31.5 percent in the first five months compared to the same period last year, while investment and new construction activities dropped by four percent and 30.6 percent, respectively.
Prior to having its bonds suspended in the HKEX due to a cross-default, the Guangzhou-based developer Skyfame Realty announced the default of a secured loan from a financial institution in Hong Kong with an outstanding principal of HK$340 million (about $44.2 million).
The firm added that it was “unable to achieve any expected improvement” after seeking possible solutions, including offshore refinancing.
Industry-wide Defaults
“The real estate industry in China is in a vicious cycle—defaults have severely dampened the confidence of investors and home buyers, resulting in limited external funding and plummeting sales,” Katherine Jiang, a Hong Kong-based financial analyst, told The Epoch Times on June 16.“Falling sales drive down developers’ operating cash flows and dent the market sentiment, jeopardizing property developers’ ability to access the debt and banking market and significantly affecting their financing cash flow. Home buyers would also delay their purchase and opt for a wait-and-see approach. As a result, property sales will fall further, and [property] prices will also drop.”
Though some Chinese developers have not disclosed their financial situations, data suggests many more are facing a liquidity crunch.
According to Securities Daily, a Chinese state-run media, between June 1 and 15, at least 11 Chinese property developers announced the disposal of their assets totaling over $4.5 billion.
“Since the beginning of 2022, the capital market has still eluded the normal financing needs of the real estate industry, especially all offshore refinancing has been stopped,” Skyfame Realty’s June 15 statement reads.
“A number of principal and interest of certain debts are still mature in 2022, but the [firm] still does not see any sign of improvement in the offshore refinancing environment.”
“The ‘great era’ of real estate in China has passed. It is still a realistic choice to actively welcome a ‘small era.’ The year 2021 is a watershed in the history of property development in China,” Yu Pan, Chairman of Skyfame Realty, said in the report.
