China Developers’ Sales Plunge as Evergrande Crisis Spreads

(Bloomberg) -- Major Chinese developers saw their sales plunge last month as China Evergrande Group sank deeper into crisis, putting more pressure on the government to limit the fallout. 

Combined contracted sales by the country’s top 100 real estate companies plummeted 36% to 759.6 billion yuan ($118 billion) in September from a year earlier, deepening a downward spiral emerging in July, China Real Estate Information Corp. said in a report. More than 90 developers saw a decline in their sales from a year ago, with 60% of them recording a drop of more than 30%, according to the report.

Under the current market conditions, real estate enterprises need to speed up development, ensure supply, strengthen marketing and accelerate sales to recoup cash in the fourth quarter, the official Shanghai Securities News cited Lin Bo, general manager of the property consulting firm, as saying in a report.

“In the medium to long term, reducing leverage is still the focus of real estate enterprises,” Lin added.

China’s relentless efforts to cool its property market and rein in financial risks have resulted in a sharp drop in real estate demand in the past few months, squeezing heavily indebted developers like Evergrande and sparking concerns of debt woes spreading. Mid-sized Fantasia Holdings Group Co., which develops high-end apartments and urban renewal projects, defaulted on a dollar bond earlier this week, reigniting investor angst over other highly leveraged borrowers.

Chinese property shares fell on Friday, while investor concerns about developers’ liquidity mounted after Fantasia bonds were suspended from trading. In the mainland stock market, an index tracking the shares of developers sank as much as 1.4%, while the Hang Seng Property Index in Hong Kong was down as much as 1.3%.

Yuan-denominated bonds of property developers fell on Friday, with notes of Xiamen Yuzhou Grand Future Real Estate Development Co. and Yango Group Co. on pace for record lows. Offshore, China’s junk-rated bonds are poised for their worst week since March 2020 with yields hitting 16.9% Thursday, according to a Bloomberg index. That debt fell as much as 2 cents on the dollar Friday morning, according to credit traders. 

Hurt Financing

Risk aversion among credit investors and Chinese banks has hurt builders’ financing. The country’s top 100 developers, such as Country Garden Holdings Co., China Vanke Co. and Evergrande, raised a combined 85 billion yuan in September, down 37% year on year, extending a downward trend starting in November last year, the CRIC report said. That was also due to some developers’ efforts to limit borrowing to meet regulatory requirements, it added.

September has traditionally been a strong season for residential property sales in China but the slowdown deepened last month. Sales volume in 28 Chinese cities monitored by CRIC declined 25% in September year on year, according to the report. In the financial hub of Shanghai, volume dropped 45%, while Beijing, Shenzhen and Guangzhou saw a decline of 30%.

The top 100 developers also saw higher financing costs in September, which rose 0.61 percentage point from the previous month and 0.16 percentage point from a year earlier to 5.55%, the report said.

Domestic home sales by value already slumped 20% in August from a year earlier, according to official data, the biggest drop since the onset of the coronavirus shut swathes of the economy at the start of last year. 

The Chinese government has taken measures to limit the fallout from its property crackdown. Late last month, the central bank told financial institutions to cooperate with governments to “maintain the steady and healthy development of the real estate market” while safeguarding homeowners. The regulators have asked banks to refrain from cutting off funding to developers all at once, Bloomberg reported.

“Looking forward to the fourth quarter, we think enterprises will maintain a proactive marketing and sales strategy and may offer deeper discounts to drive sales,” the CRIC said in the report.

©2021 Bloomberg L.P.

With assistance from Bloomberg