As China maintains its strict Covid Zero policy, the country’s property crisis has worsened. Preliminary data from China Real Estate Information Corp showed China’s 100 biggest real estate developers saw October new home sales plunge -28.4% y/y to 556.1 billion yuan ($76.2 billion), as the decline in new home sales worsened from a -25.4% y/y drop in September.

China’s housing market remains fragile despite a wave of measures to restore confidence.  China’s Greenland Holding Group, which is partially owned by local government entities and has been shielded from the worst of the property downturn, sank to a record low Monday after it said it would likely default on a dollar note due November 13.  Also, CIFI Holdings Group, among a small group to get state guarantees for local debt offerings, dropped to a record low after it said it would suspend offshore financing payments.

Pollack Asset Management Ltd said, “investors have pretty much lost all hope in the entire property sector, and the sheer scale of destruction in value will have a profound impact on the investment appetite of all kinds of China risk assets for years to come.”  The contagion in China’s property debt crisis has put more companies in distress, with 94% of China’s property companies' dollar notes trading below 70 cents on the dollar.

The contagion of China’s property debt crisis has spread to companies that still have investment-grade ratings.  China Vanke Co, the country’s second biggest developer by sales, saw its note due in 2027, which was trading above 80 cents on the dollar just a month ago, plunge to an all-time low today of 40.3 cents.  CGS-CIMB Securities said, “it’s not just a confidence issue, and developers’ liquidity conditions are only getting tighter in the future, given home sales have been slower than expected.”

Chinese policymakers have tried to revive the housing market by having state-owned China Bond Insurance guarantee local note sales by some builders.  Also, there was an unexpected interest rate cut by the PBOC in August, and special loans were made to troubled property developers.  However, as refinancing costs surge in global debt markets, China’s property crisis may only worsen.  China’s property sector has at least $292 billion of onshore and offshore borrowings coming due through the end of 2023.

China’s property crisis has negative carry-over implications for the Chinese and global economies, global stocks, and global commodity prices.

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