Chinese real estate bonds a hot commodity, albeit defaults

Latest data reveals that developers have sold bonds worth USD20.3 billion 

Real estate developers in China, with their accumulated debts in tow, prove to be undeterred by the industry’s worrying situation, having found investors for their bonds worth billions, reported the Wall Street Journal. 

The property bonds were sold for USD20.3 billion since the start of the year, a 16 percent growth compared to the same period in 2020 and more than the figures earned in 2017 and 2018. Even so, the amount falls short of that in 2019 when the bonds were sold for USD34.2 billion. 

Major developers have defaulted on debts, but since last year, the local government has come up with an array of schemes to modulate the sector’s growth. Housing prices have expanded rapidly in the past two years, putting both developers and buyers in distressing amounts of debt. 

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Early in the year, the government has enforced limitations on developer leverage and bank lending, in hopes to slow down the market. Experts have witnessed the descent of home prices over the course of 2020, but prices have started to surge again in the recent months. In turn, large corporations have expressed their concern over further government intervention. 

Despite the worries, Luther Chai, the senior credit analyst for CreditSights, said that old debts are being replaced by most of the new debts being issued, which means that the developers should see a development in their creditworthiness this year. 

“Even though most developers may still record a growth in total debt, we expect the pace of year-on-year debt growth to slow,” concluded Chai.