China’s property crisis reignited as state-backed builder fights to avoid default

CHVKF -6.86%

China’s property crisis has reignited after one of its largest state-backed developers was plunged into a fresh debt spiral.

Vanke, once the country’s largest housebuilder, slumped in the bond market on Wednesday amid fears it cannot pay back lenders without government support.

Some of its Chinese-listed bonds plunged by more than 20pc, forcing the Shenzhen Stock Exchange to suspend trading, while its shares also fell 6pc to 3.88 Hong Kong dollars (37p) – the lowest level this year.

Vanke is facing a race against time to convince investors it can repay 13.4bn yuan (£1.4bn) of debts due for repayment next June.

Viewed as a bellwether for China’s property sector, the company’s woes underscore the pressure on the wider market as Beijing attempts to prop up its housing sector.

Demand has remained weak, with new home sales dropping at their fastest monthly pace during October.

This is despite efforts from the Chinese government to stimulate growth, introducing policies to ease curbs on buying in cities and bring down borrowing costs on existing mortgages.

It comes after another property giant, Evergrande Group, delisted from Hong Kong’s stock exchange in August.

The downfall of Evergrande marked the biggest collapse of the sector-wide slump, which had dragged down the country’s economic growth.

Analysts at major banks predict there is more gloom ahead for China’s property market. UBS said it expected property sales, construction activity and investment to drop further for at least two more years.

In October, Fitch Ratings estimated that new home sales could potentially fall by another 15pc to 20pc from their current level before the market stabilises in 2026.

Vanke this year disclosed the sudden departures of Yu Liang, its chairman, and Zhu Jiusheng, its chief executive, citing “work adjustment reasons” for Mr Yu and “health reasons” for Mr Zhu.

At the same time, Vanke said it was experiencing “temporary liquidity difficulties” from a fall in new-build home sales in China. It said it expected to make a loss of 45bn yuan for 2024, dropping from 12bn yuan profit in 2023.

Policymakers in Beijing have reportedly been considering fresh measures to turn around the market’s fortunes, including subsidising interest payments on new mortgages and lowering transaction fees on home sales.

Vanke was contacted for comment.

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