With the property sales plunging almost 31% in September, another developer of luxury apartments has missed its payment to the lenders, increasing worries for China's most prominent real estate sector. The situation has been taken as an increased financial strain on the country's realty sector as it is also the biggest sector and contributor of the Chinese economy. A report by SURFACES REPORTER (SR).
What is Evergrande?
Evergrande is a major private-sector Chinese property developer having almost $78 billion in revenue last year and hundreds of projects in more than 200 Chinese cities. As it has used borrowed money and presold apartments to aggressively amass land and develop projects, the company has incurred almost with an equivalent of around $88 billion in outstanding debt at the end of June. With already missing a $83.5 million interest payment due on some of its dollar-denominated bonds, it is on the verge of default if the payment is not made in next 30 days.
The cash crunched entity is deeply embedded in China's financial system and economy along with being a major job provider. Being a publicly traded developer, a collapse of such scale could be a catastrophe for dwindling real estate sector of the Chinese economy sparking off a chain of defaults.
Read more: Why is Top Real Estate Developer Evergrande in Trouble | 1300 Projects Ongoing in 280 Cities | SURFACES REPORTER
Latest Development regarding Fantasia Holdings
In a separate development, another Chinese developer, Fantasia Holdings, based out of Shenzhen has missed repaying $206 million worth of bonds that matured in the beginning of this week. A developer of luxury apartments, Fantasia, in a statement has said it is now assessing "the potential impact on the financial condition and cash position of the group".
Additionally, Fantasia has also failed to repay a company loan of about 700 million Yuan ($109 million) to Country Garden, China's second largest developer by sales after Evergrande. According to the property management unit of the brand, Fantasia had informed them that it would probably "default on [its] external debts".
Increasing Financial woes
Fantasia has already been slapped with 'Default' credit rating by global credit rating agencies S&P and Moody who has also stated that the non-payment of principal would likely also put the company in default on its remaining bonds. "The downgrade follows Fantasia's announcement... that it had missed payment on its $205.7 million bond due on the same day, and reflects our expectation of weak recovery prospects for Fantasia's bondholders after its default," said Celine Yang, a senior analyst at Moody's.
The experts of Chinese real estate market have already expressed their concerns over the deepening woes of the market with Evergrande's possible fall. Now after the latest happenings with Fantasia, new debates are sparked reviving the fears for country's ever expanding realty sector. The vitality of sector can be understood as it accounts to almost 29% of outstanding loans issued by Chinese banks in yuan in the second quarter of 2021 and constitutes almost 30% of the GDP.
According to the report Fantasia's default shows that Evergrande's troubles "could dampen the sentiment for homebuyers, developers and banks, causing more developers to run into a liquidity crunch."
SURFACE REPORTER View
The situation of the Chinese market is not encouraging, to say the least. Already the sale of property is down 31 percent in September as compared to the same period last year. With large developers defaulting on debts, it may start off a chain reaction that will spread across the entire property market. There will be a rippling effect which may spread across to other sectors as well causing widespread unemployment and severe cash crunch. World is looking at the unfolding situation with bated breath as the fall of Chinese property market will have far reaching consequences, one that will not be good for the world economy at large.
Source: IANS & WSJ