China property stocks tumble on renewed debt fears

Chinese property stocks tumbled on Monday, led by shares of Country Garden which sank to fresh eight-month lows on renewed debt fears for Chinese real estate developers.

Hong Kong-listed shares of Country Garden were down by nearly 7%, its lowest level since early November. Its property services arm Country Garden Services plunged more than 15%.

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JP Morgan downgraded both companies to underweight, and more than halved the target price of Country Garden and its property services listing. The bank’s analysts warn that unless the Chinese government offers more policy support, liquidity concerns will likely remain.

The Hang Seng Mainland Property Index, a gauge of Hong Kong-listed Chinese property counters, was down more than 5%, underperforming the Hang Seng Index which fell 1.5%.

Shares of Longfor Group were down by 9% on Monday, while Sunac fell nearly 6%, China Vanke was down 3.4% and China Overseas Land and Investment shed 3.16%.

Country Garden is seen as one of the largest property developers in the mainland. A move last week to refinance part of a 2019 loan facility failed to assure investors of its ability to service its debt, Reuters reported.

JP Morgan’s analysts slashed target prices for Country Garden by more than 60% to HK$0.90 and Country Garden Services by nearly 70% to HK$6.70.

Monday’s slide for the Chinese property sector comes after heavy losses last week following weak property-related data and property giant Evergrande’s overdue earnings report that showed the full extent of its default.

The country’s property sector is struggling to emerge from a credit crisis after the government cracked down on its debt levels in August 2020.

Years of exuberant growth led to the construction of ghost towns where supply outstripped demand, as developers looked to capitalize on the desire for home ownership and property investment.

Weakness in China’s real estate sector could be a drag on the economy for years to come and could even impact countries in the wider region, Wall Street banks have warned.

Goldman Sachs economists said the property market is expected to see an “L-shaped recovery” — defined as steep declines followed by a slow recovery rate.

Official data last week showed a 7.9% drop in property investment for the January to June period. That’s steeper than the 7.2% drop reported for January to May.

Last month, China’s second-largest developer China Vanke said the sector is “indeed under pressure in the short term” and the situation is “worse than expected,” according to a CNBC translation.

Last Monday, property giant Evergrande posted a combined loss of $81 billion in its long overdue earnings report. The world’s most indebted property developer fell into default in 2021 and announced an offshore debt restructuring program in March, as the company struggled to finish projects and repay suppliers and lenders.