Experts are warning of liquidity risks in China’s real estate sector. The situation remains tense, even though the major Chinese real estate developer Country Garden Holdings has recently restructured its debts and postponed potential liquidation.
Country Garden’s restructuring plan
On January 9, Country Garden Holdings (CG) presented a restructuring plan addressing $11.6 billion in foreign debts. The real estate developer, which adjusted its debt servicing at the end of 2023, is offering creditors various restructuring options, ranging from a 90% cash discount to longer-term debt rescheduling.
Losses and postponed liquidation
A report for the first half of 2024, published on January 14, revealed a loss of 12.8 billion Chinese renminbi (1.62 billion Swiss francs), just a quarter of the losses from the previous year. Subsequently, the Hong Kong High Court postponed the company’s liquidation hearing for the third time, rescheduling it for May 26. Trading of CG shares has since resumed on the Hong Kong stock exchange.
Property sales and market stabilization
Country Garden may use this extra time to ease its debt burden through property sales. In September, the Politburo of the governing Communist Party called for stabilization of the real estate market. While this led to some growth in property sales, levels remain low.
Persistent challenges in the real estate sector
Property sales in 2024 covered only a sixth of the real estate under construction. Rising inventory levels have put further pressure on property prices, which have been falling steadily since mid-2023. The tentative recovery remains focused on major cities, while lower-tier cities, where Country Garden is more active, may see improved conditions over time.
Limited government support
Furthermore, the experts state that the government’s role must not be overestimated. Although the central bank introduced a refinancing facility worth 300 billion Chinese renminbi in May 2024, this measure covers only about a tenth of the real estate market’s needs. Moreover, returns on property investments are less attractive than other options.
Declining economic contribution of real estate
The real estate sector’s share of China’s GDP has declined from 14.5% in 2020 to 12.9% in 2024. Additionally, land sales in 2024 were 60% lower than in 2021, indicating that market weaknesses may persist for the foreseeable future.