China's Real Estate Crisis in Its Fifth Year... Vanke and Hong Kong Developers Face Liquidity Crisis

China's real estate debt crisis has continued for five years, causing severe repercussions across the market. Major developers are facing default risks, and the ripple effects are intensifying in overseas markets such as Hong Kong. Although Chinese authorities are introducing bailout measures, analysts suggest that market recovery will take more time.

◆Vanke and New World's Crisis, Default Concerns Spread

On the 23rd, Bloomberg reported that Chinese real estate developer 'Vanke' is at risk of default. Chinese banking regulators have instructed insurers to report their financial exposure to Vanke to assess the level of support needed to prevent a default. Vanke's dollar bonds maturing in 2025 fell about 10 cents last week to 80 cents on the dollar, while bonds maturing in 2027 plunged to 49 cents. This indicates that investors are skeptical about Vanke's ability to repay its debts.

The impact of China's real estate crisis is also spreading to the Hong Kong market. Hong Kong's major developer 'New World Development' has requested banks to extend the maturity of some loans. As of the end of June, New World holds debts amounting to 220 billion Hong Kong dollars (approximately 40.87 trillion won) and recorded its first annual loss in 20 years. 73% of New World's total real estate sales occur in mainland China. Some of New World's perpetual bonds have fallen to an all-time low of 30 cents, and its stock price has plummeted by 57% this year.

Hong Kong-based luxury real estate developer 'Parkview' Group is also selling assets to escape this crisis. Parkview is attempting to sell its iconic pyramid-shaped commercial complex located in Beijing's central business district. This commercial complex, which includes a shopping mall, hotel, and art center, is struggling with high loan repayment costs.

◆Chinese Government's Response and Limitations

Chinese authorities are announcing various policies to overcome the crisis, such as interest rate cuts, reducing purchase costs, and state guarantees for bond issuance. Earlier this month, an economic meeting promised to stabilize the real estate market next year. However, analysts suggest that the government's bailout measures are focused only on preventing a collapse in property prices, protecting owners of unfinished apartments, and absorbing excess supply, without addressing the structural issues of the industry.

In particular, the Chinese government has lost significant market trust by observing the default situations of major companies like Evergrande and Country Garden. Leonard Law, an analyst at Luk Fook Analytics, predicted, "Recent government policies have succeeded in slowing the decline, but it may take another 1-2 years for the market to bottom out."

The global capital market is also being affected. According to Bloomberg data, the bond issuance of Chinese mainland and Hong Kong developers this year is expected to record the lowest level in the past decade at 67.3 billion dollars. Daniel Fan, an analyst at Bloomberg Intelligence, analyzed, "Hong Kong developers are facing a double whammy of the Chinese market's downturn and the adjustment of the Hong Kong real estate market." The impact of China's real estate crisis is expected to continue for the time being, as the liquidity crisis of major real estate developers persists and investor confidence remains low.

Hyein Lee, reporter hey@hankyung.com