- China's long-standing real estate crisis could get even worse.
- Concerns about Vanke have been raised following reports that the government-backed real estate developer is seeking an extension to its debt maturities.
- If Vanke defaults on its debts, it could undermine confidence in all real estate developers in China.
China's long-running real estate debt crisis has already devastated real estate giants Evergrande, It is currently being liquidated.
Home sales and prices in the country also slumped.
But China's property crisis could get even worse.
“I think there's an assumption at this point that the level of market activity has dropped so much that things can't get any worse, but that's not actually the case,” said Charlene Chu, senior analyst at Autonomous Research. ” he said. she told Bloomberg TV on Monday.
Mr Chu warned about China's debt more than a decade ago, saying the country was still “in the midst of a real estate sector collapse and the situation could be even worse than it is now”.
Concerns grow over another Chinese real estate giant
Mr Chu's assessment of China's real estate market comes amid growing concerns about Vanke, a state-backed development company that was China's second-largest developer by revenue last year.
Investors dumped Vanke shares and bonds this month after reports the company was seeking debt maturity extensions with insurance companies, suggesting the company is in financial trouble. are doing.
Vanke Financial announced on Friday that it had deposited funds to repay $630 billion in bonds due Monday. Reuters reported on Monday, citing two unnamed sources familiar with the matter, that the Chinese government has asked banks to step up lending to Vanke and asked creditors to extend debt maturities. ing.
Bloomberg reported on Tuesday, citing unnamed people familiar with the matter, that regulators are coordinating talks with Vanke Bank and banks to help the bank avoid default.
The Chinese government's intervention in Vanke highlights how important the real estate giant is to China's economy. Last year, the company sold real estate worth 375.5 billion Chinese yuan ($52.2 billion).
However, Vanke's importance lies in more than just the number of apartments it sells. That number is quite high, as he has consistently ranked as one of China's top developers for at least the past decade. Instead, the fact that it is a huge state-backed company is important. State-owned Shenzhen Metro holds a one-third stake in Vanke.
Despite China's real estate recession, Vanke is considered a financially sound developer and is one of the few Chinese developers that still holds investment grade credit ratings from S&P Global and Fitch. Moody's downgraded Vanke Securities to junk status on Monday.
Notably, the Chinese government's move comes just days after China's Housing and Urban-Rural Development Minister Ni Hong said the country had no intention of bailing out struggling real estate developers.
“Real estate companies that are seriously insolvent and have lost their management capacity must go bankrupt and be reorganized in accordance with the principles of the rule of law and marketization,” Nie said. he said at a press conference.
But Vanke Enterprises is different — if Vanke Enterprises were to default on its debts, it would undermine confidence in the state-owned developer, Chu said.
“I think if state-owned companies are not secure, it could lead to a loss of confidence among almost every developer in the country,” she told Bloomberg.
There are also concerns that China's property crisis could spread more broadly domestically and cause contagion in China. world economy.
Vanke University and China's State Council News Office did not immediately respond to Business Insider's requests for comment.
