Country Garden fuels China housing crisis as major developer suffers record £5.3 billion loss
A major Chinese real estate developer has posted a record loss amid a growing liquidity crisis in the country’s real estate sector.
Country Garden, based in China’s Guangdong province, suffered a half-year loss of £5.3 billion after the company’s share price plummeted in a dismal six months amid growing fears for its survival.
The figures came after the company this week requested more time to repay some of its debts, in a sign it was facing mounting financial strain.
Country Garden, of which Yang Huiyan is chairman, has nearly £160 billion in debt and recently asked creditors for a 40-day grace period to repay a £425 million bond due Monday.
Mortgage bonanza: Guangzhou, China’s fifth-largest city, announced that loans would be made available to first-time buyers regardless of their previous credit history
Some creditors are believed to oppose the measure even as the company’s risk of default on its loans increases.
Just a year ago it was China’s top real estate company by revenue and one of the few private companies that suppliers and lenders could rely on to pay their bills.
But confidence was shaken this month when Country Garden missed interest payments on two other bonds, despite previously being considered one of the least likely developers to default.
Confidence in China is low after years of lockdowns and other Covid prevention measures have weighed on consumers who are spending less. Businesses are hiring fewer people and, as a result, fewer people are buying houses.
Country Garden’s woes stem from a similar crisis at rivals Evergrande, which defaulted on its huge £236 billion in debt in 2021. This caused ripples in international markets amid fears that the collapse could trigger a chain reaction and a global financial crisis.
Last month Evergrande finally reported long-delayed 2021 and 2022 financial results, revealing the company had lost £64 billion over the two-year period.
Its shares fell 10 percent yesterday after resuming trading on Tuesday — for the first time in nearly 18 months.
Problems: Country Garden Chairman Yang Huiyan
The stock has lost almost 99 percent of its value over the past three years and has filed for bankruptcy protection in the US to protect its American assets.
With Country Garden home to four times as many housing projects as Evergrande, there are fears its demise could spark an even bigger crisis.
“Investors, as well as the ruling Communist Party and the People’s Bank of China, must now assess whether a sudden collapse is imminent or whether the real estate market will endure an extended period of subdued growth as speculative excesses are eliminated,” said Russ Mold, investment director at AJ Bell.
The warning signs have prompted authorities to act, and state-owned banks are poised to cut interest rates on existing mortgages and deposits for the first time in about 15 years in a bid to ease pressure on real estate sector profit margins and stimulate demand.
Guangzhou, China’s fifth largest city, has also announced that loans will be made available to first-time buyers regardless of their previous credit history.
The measures have helped boost market sentiment, with Hong Kong’s Hang Seng Mainland Properties Index closing up about 0.5 percent yesterday.
But some fear stimulus measures will fail to revitalize the ailing economy.
Official figures showed that China had slipped into deflation, with consumer prices falling 0.3 percent year-on-year last month.
The country also halted the release of youth unemployment data after the unemployment rate hit a record 21.3 percent in June.
Over the weekend, figures showed that profits in China’s industrial sector fell 6.7 percent in July.