Country Garden caves to debts as China’s real estate crisis worsens

The embattled property developer Country Garden said on Tuesday it was unable to repay a loan and expected to miss upcoming overseas debt payments as a result of plunging sales from China’s spiralling property crisis.

The announcement, made on the Hong Kong Stock Exchange, is effectively a statement from Country Garden, once China’s largest homebuilder, that it is likely to default with roughly $US187 billion ($291 billion) in liabilities. Country Garden is one of the biggest casualties of China’s imploding real estate market, which has sent Evergrande, another giant property developer, into bankruptcy.

Country Garden has been scrambling over the last few months to stave off a collapse, selling off assets to raise cash and negotiating with creditors to restructure liabilities or delay payments. But the company’s unabated struggle to sell new apartments has throttled the cash flow necessary to stay on top of debt payments.

Country Garden said presales of unfinished apartments, an important indicator of future revenue, fell for a sixth straight month in September, to 6.17 billion yuan ($1.31 billion). That was down 81 per cent from the same month a year ago. For the first nine months of 2023, presales were down 44 per cent from the same period a year earlier.

“Prevailing market conditions have made it difficult for the group to procure sufficient cash to enhance its liquidity position within a short period of time. Consequently, the group’s cash position remains under significant pressure,” the company said in the statement.

‘We do not expect the firm’s liquidity to materially improve in the near term as homebuyers and financial institutions may continue to stay on the sidelines.’

Morningstar analyst Jeff Zhang

It added that there had not been “any material, industrywide improvement in property sales,” and that Country Garden faced “significant uncertainty” in trying to unload assets to improve its liquidity.

For the last two years, while other property developers failed to pay off debts after years of excessive borrowing and aggressive building, Country Garden had seemed like an outlier, a rare example of a fiscally responsible Chinese real estate firm. But as the economy struggled to rebound after Beijing lifted its restrictive COVID-19 policies and the slump gripping the country’s property market persisted, Country Garden’s financial pressures worsened.

Country Garden has been especially hurt by its heavy exposure in China’s lesser-developed third- and fourth-tier cities, where the real estate slowdown has been more pronounced.