Trust sector defaults tipped to rise as developers struggle

The mainland's property trust sector will probably suffer more defaults in the next two years as thousands of small developers will be squeezed out by intensifying competition amid policy tightening by the government, industry analysts said.

A record amount of funds has recently been raised by trust firms to help finance property projects as developers and investors have been encouraged by strong housing demand and rising home prices, despite repeated efforts from the government to cool the market.

However, some badly managed developers have failed to meet their debt obligations after being caught in a cash crunch as sales stalled following fresh tightening measures.

Media reports last month swirled around Sichuan Trust taking small developer Jindu Real Estate to court in Zhejiang province, demanding 121 million yuan (HK$153 million) after the developer failed to repay the debt when it came due in March.

New China Trust also resorted to a court case against another developer, Shandong Torch Real Estate, for the same reason.

"We will continue to hear about such scandals, although a systemic crisis is not likely," said Shuai Guorang, a property trust analyst with User-Trust Studio, a consultancy specialising in the trust industry.

"However, they point us to hidden credit and operating risks that we must not overlook."