Amid a persistent credit crisis triggered by government intervention in 2020, China’s property market saw an 8% decline in investments during the first half of this year, according to June reports.
This slump underscores the challenges faced by a sector that constitutes a significant portion of the world’s second-largest economy. The aftermath of years of exuberant growth has left a trail of excess supply and “ghost towns,” a result of developers overestimating demand while seeking to capitalize on the housing and property investment fervor.
But that’s not the end of the woes for Chinese property developers. On August 8, shares of leading local real estate firms crashed abruptly in Hong Kong after the largest developer fell into a debt crisis.
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Developers such as Glorius Property Holdings, Country Garden, Yida China, and Times China, among others, have all seen double-digit declines in Tuesday trading, data retrieved by Finbold showed.
Why are Chinese property stocks plummeting?
The share price crash in Chinese real estate development firms was triggered after industry leader, Country Garden Holdings, missed interest payments on two US dollar bonds, sending shockwaves through the sector that plays a pivotal role in the country’s economy.
Notably, Country Garden failed to pay $22.5 million in interest that was due on August 7 on debt securities with a total face value of $1 billion. The two bonds, which were due to expire in 2026 and 2023, saw their price tumble to below 8 cents on the dollar.
Such low price levels suggest that investors are expecting Country Garden to default. The company now has a 30-day grace period to make the payments, before bondholders are allowed to issue a notice of default to the company.
Country Garden’s stock plunges 14%
Country Garden’s shares plunged sharply on the news and are down 14.39% at the time of writing, at 1.13 HKD ($0.14).
This one-day stock price decline wiped nearly $5 billion off the company’s market cap, pushing it down to $30.9 billion.
The company’s shares lost more than 25% value over the past month, and more than 56% since the start of the year.
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