Country Garden reports $7bn in loss as China’s real estate crisis worsens

Country Garden, China’s once largest private property developer based on sales, revealed a record 48.9bn loss ($6.7bn), as it struggles to survive the real estate industry’s liquidity crisis.

The group’s six-month losses, announced on Wednesday, are the largest ever for a group that was considered to be safer than its peers until recently. The results also show the dire future of an industry that is responsible for over a quarter (25%) of all economic activity in China.

The company’s troubles are part of the two-year liquidity crisis in the real estate industry that began when developer China Evergrande defaulted in 2021. There have been signs of spreading into the Chinese investment sector.

Country Garden has seen its losses grow from 6.7bn in the second half 2022. In contrast to this week’s figures, the company had made a profit in the first half of last year of 612mn.

The Guangdong group reported that its revenue in the first six months of this year increased by 39 per cent, to 226bn.

It added that “it had struck a balance between the sales volume and price of some of its projects” in order to “ensure timely delivery of finished property” – an apparent admission that it cut prices to move units.

Country Garden missed coupon payments for international bonds this month, which heightened concerns about its finances. The developer requested a grace period of 40 days for a renminbi debt maturing next Tuesday.

Country Garden reported that it had liabilities totaling 1.36tn at the end of first half 2023. It said that it would “consider adopting a variety of debt management measures” to resolve what it called “phased liquid pressure”.

Beijing was strict with developers who borrowed money during the coronavirus outbreak, but it has had to relax its policy as China struggles to revive its economy.

Guangzhou, Shenzhen and other southern cities have relaxed the mortgage lending requirements for first-time home buyers in response to the mounting pressure on the authorities.

The caps on mortgage lending by banks were initially part of a broader approach to combating overheated home prices. Housing prices have been hit by a prolonged slowdown due to a collapse in sales and delays with the construction of new apartments.

Country Garden’s approach to the government is closely monitored.

According to Dealogic, Chinese developers will have to pay $38bn in renminbi or dollar bonds over the next 4 months.

Bruce Pang is the chief economist at JLL for Greater China. He said that defaults by private developers will continue to occur as they are all facing cash flow pressures. This won’t be going away anytime soon. It will take some time for any policy support to be reflected in cash flow, new construction and home sales.

Country Garden planned to raise $300mn through a share offering in late July but cancelled it at the last moment.

The developer announced Wednesday that it would issue HK$270mn (US$34mn) in new Hong Kong shares at a 15% discount from its Tuesday closing price. All money raised will be used to repay existing loans.

Country Garden shares rose 5.7% on Thursday morning, following the release of first-half results. Stocks are down by two-thirds this year, resulting in a market cap of over $7bn.