The View | As the coronavirus tears through financial markets, Chinese real estate bonds are holding the fort
- While sales are falling and the rise in home prices slowing across Chinese cities, real estate debt remains resilient on the back of decisive government action to contain the spread of the coronavirus and policy support for developers
Last month, contracted sales among 30 mainland developers tracked by Bloomberg fell by an average rate of 33 per cent year on year, the sharpest fall in at least six years despite strenuous efforts by home builders to shift their sales to online channels. In January, house prices in 70 major cities across China rose at their slowest pace in almost two years, and may have contracted last month.
The virus-induced shock to the housing market – which directly accounts for 7 per cent of the country’s gross domestic product, or one fifth of output if indirect contributions are included, data from Bloomberg shows – has squeezed developers’ cash flows.
With the proceeds from presales of apartments constituting the most important source of funding for property firms, an increasing number of distressed developers are going bust, while some of the weaker players risk defaulting on their US dollar-denominated bonds.
In a report published by Standard & Poor’s last week, the rating agency warned that “declining sales will hurt developers’ liquidity”, adding that “several companies already in the ‘CCC’ category, or with low ratings with negative outlooks, may face liquidity issues over the next several months.”
