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China RE Crisis Grows: Another Chinese Developer Defaults, Evergrande Lifeline Falls Through, Housing Market Shrinks

A project being developed by Evergrande in the Chinese city of Yuanyang

China Evergrande Group's debt problems are deepening as the ripple effects from its credit crisis continue to spread in China's real estate sector.

Evergrande's proposed $2.6B sale of a majority stake in its property management arm to Hopson Development Holdings has officially fallen through, The New York Times reports. The deal's failure represents another closed avenue for the developer to pay off some of its $305B in debt obligations, the most for any real estate company in the world.

A small yet significant chunk of that debt faces a key deadline Thursday, when the 30-day grace period for Evergrande to make a payment on a dollar bond expires, Bloomberg reports. Should the company fail to pay the coupon for the $83M bond due in March, it will officially be in default.

Other Chinese real estate groups are also dealing with sizable defaults. Sinic Holdings Group had its credit rating downgraded to Selective Default by S&P Global Ratings on Tuesday after failing to pay the interest and principal of a $250M bond due Monday, Bloomberg reports. That follows a similar default by Fantasia Holdings Group earlier in October while other developers, some with U.S. holdings, have sought to delay payments or otherwise mitigate their obligations with lenders. Recent bond offerings by Kaisa Group Holdings have dropped steeply in value after a ratings cut, Reuters reports.

Official party leadership in China has finally made public statements addressing the real estate market's growing issues, saying that despite some companies facing default risks due to "mismanagement issues," the overall market is still healthy, Reuters reports. The perspective from homebuyers in the country does not match the party line, however.

Home prices in China stalled in September, the first month without growth since the coronavirus-slammed February 2020, Reuters reports. While some analysis found home prices are flat, others determined that prices actually fell month-to-month, which would be the first instance of home price decline since 2015, Bloomberg reports.

Sales activity declined sharply last month as well, despite September traditionally being among the most active months for home sales in China, while interest waned significantly in auctions of land held by regional governments — a key source of their revenue, Bloomberg reports. Early reports from October show sales activity declining even more sharply, signaling that China's official stance that the contagion from Evergrande's collapse is contained has not eased fears in the country's property markets.