The collapse of real estate stocks in China, with renewed debt concerns.. What happened?

2023-07-24 09:58:00

real estate

The Hang Seng real estate index fell 5% in Hong Kong.

Dubai – Al Arabiya.net

Posted on: July 24, 2023: 01:58 PM GST Last updated: July 24, 2023: 02:07 PM GST

Chinese real estate stocks fell on Monday, led by Country Garden shares, which fell to an eight-month low on renewed debt concerns for Chinese real estate developers.

Shares of the Hong Kong-listed company fell nearly 7%, the lowest since early November. Its service arm, Country Garden Services, fell more than 15%.

JPMorgan underweighted both companies and cut the price target for Country Garden and its real estate services subsidiary by more than half. Bank analysts cautioned that unless the Chinese government provides more support, liquidity concerns are likely to remain.

The Hang Seng Main Real Estate Index, a measure of Chinese real estate companies listed in Hong Kong, fell more than 5%, compared with a 1.5% drop in the Hang Seng Index.

Shares of “Longfor Group” fell 9% Monday, while “Sunac” fell nearly 6%, “China Vanke” fell 3.4% and “China Overseas Land and Investment” fell 3.16%.

Country Garden is one of the largest real estate developers on the mainland. Archyde.com reported that a move last week to refinance part of a 2019 loan facility failed to reassure investors of its ability to service its debt.

JPMorgan analysts cut price targets for “Country Garden” by more than 60% to HK$0.90 and for “Country Garden Services” by about 70% to HK$6.70.

Monday’s slump in China’s real estate sector follows heavy losses last week in the wake of weak property data and a delayed earnings report from real estate giant Evergrande that showed the full extent of the default.

The country’s real estate sector is struggling to get out of the credit crunch after the government suppressed its debt levels in August 2020.

Years of explosive growth also led to the building of ghost towns as supply outpaced demand as developers looked to capitalize on the appetite for homeownership and real estate investment.

Wall Street banks warned that weakness in China’s real estate sector could be a drag on the economy for years to come and could even affect countries in the wider region.

Economists at Goldman Sachs said the real estate market is expected to experience an “L-shaped recovery” defined as a sharp decline followed by a slow rate of recovery.

Official data last week showed a 7.9% drop in real estate investment in the January-June period. This is sharper than the 7.2% decline recorded in the January-May period.

On Monday, real estate giant Evergrande reported a combined loss of $81 billion in its long-awaited earnings report. The world’s most indebted real estate developer defaulted in 2021 and announced an external debt restructuring program in March, as the company struggled to finish projects and repay debts to suppliers and lenders.