Expert: China's real estate sector expects new defaults

Analysts at the investment bank Goldman Sachs believe that China may face a series of new defaults, especially in the real estate sector. 

The agency's leading experts Kenneth Ho and Chucky Ting noted that since the beginning of this year, 22 Chinese issuers of high-yield bonds related to the real estate sector have either defaulted on their dollar-denominated bonds or postponed their repayment by exchanging bonds.

In particular, analysts raised the forecast of the default level of China Property HY for the 2022 fiscal year from 19% to 31.6%.

The Chinese authorities, in an attempt to support the real estate sector, have lowered the mortgage rate and the benchmark rate. Over the past 2 years, regulators have paid special attention to reducing the dependence of developers on debt for their own growth. As a result, smaller companies have managed to adapt to the circumstances, but large ones (for example, Evergrande) still worry investors about the size of debt and the potential consequences of a large-scale default.

Experts note that the current situation in China does not bode well for the real estate sector: taking into account the current coronavirus travel restrictions and the need to observe self-isolation, the volume of real estate sales has fallen sharply. According to Goldman's analysis, the daily volume of real estate transactions in 30 major Chinese cities in May decreased by 50% compared to the same period last year.

In addition to lowering the rate, some local authorities have reduced down payments or announced other measures to facilitate the purchase of real estate at the local level. However, in general, Beijing's real estate policy has been so tough in the last 2 years that the average mortgage rate has been higher than the average loan rate. There is one conclusion – the housing market in China needs an urgent rescue.