HomeBusinessThe real estate flare-ups in China are resurging as the crisis enters...

The real estate flare-ups in China are resurging as the crisis enters its fifth year

(Bloomberg) — One of China’s leading developers is now on authorities’ radar over default risk. A major builder in Hong Kong is asking lenders to make loans. Another industry peer is selling an iconic but largely empty shopping center in Beijing.

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As China’s real estate debt crisis enters its fifth year, there is little evidence that distressed developers are finding it easier to repay their debts as the decline in home sales continues. Their dollar bonds are still trading at deeply troubling levels, their debt issuance has all but dried up, and the sector is a notable stock market laggard.

Alarm bells went off again in recent weeks when the banking regulator ordered top insurers to reduce their financial exposure to China Vanke Co. to assess how much support the country’s fourth-largest developer by sales needs to avoid bankruptcies. In Hong Kong, New World Development Co. tried. to postpone the maturity of a number of loans, while Parkview Group in Beijing put a historic commercial complex up for sale.

The latest signs of stress are adding to concerns that the worst is far from over for the housing sector in the world’s second-largest economy, once a powerful growth engine and now a major drag on demand for items from furniture to cars. And they are especially worrying because Vanke’s woes show that the liquidity crisis is hitting one of the few major builders that have so far managed to avoid bankruptcy. Meanwhile, the problems faced by his colleagues in Hong Kong mean the contagion is increasingly felt offshore.

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“While recent government policies have helped stem the pace of the decline, it may take another year or two for the sector to bottom out,” said Leonard Law, senior credit analyst at Lucror Analytics. “Against this backdrop, we cannot rule out the possibility of further defaults next year, even though the overall default rate should be much lower than before.”

Chinese authorities have stepped up efforts in recent years to ease the unprecedented slowdown in the country’s housing market, including interest rate cuts, curbs on purchasing costs and restrictions, as well as government guarantees for bond sales by stronger developers. Top leaders also pledged to stabilize the real estate market next year at a key economic meeting earlier this month.

However, the rescue measures taken so far have focused on preventing a collapse in property prices, protecting owners of unfinished apartments and using sovereign wealth funds to help absorb excess supply. At the same time, policymakers chose to watch as former industry giants China Evergrande Group and Country Garden Holdings Co. were in default.

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