A Chinese real estate developer missed a key payment to foreign bondholders this week, heightening the persistent fears of a coming crisis in China’s real estate sector.
The developer, Fantasia Holdings Group, a company specializing in luxury properties that was founded by the niece of Zeng Qinghong, a former vice president, said on Monday night that it had failed to make a final payment of $206 million. The disclosure surprised investors already on edge after two missed payments from China Evergrande Group, the world’s most indebted developer.
Jittery investors sold shares of other developers on Tuesday, sending some stocks down as much as 10 percent. The yields on developers’ bonds were trading at nearly a decade high, meaning the cost of borrowing for the companies had shot up.
In the disclosure made on Monday night, Fantasia said its board would “assess the potential impact on the financial condition and the cash position of the group under the circumstances.”
Fantasia, like Evergrande, is based in the southern Chinese city of Shenzhen, but unlike its peer, Fantasia had not shown difficulties in paying its bills until now. By failing to make its final payment on Monday, Fantasia prompted a default. The company also failed this week to make a $108 million repayment on a loan from Country Garden Services Holdings, another real estate company, according to a filing on Monday.
Evergrande roiled global markets last month after it failed to make a payment to foreign bondholders. Investors began to reconsider the long-held assumption that Evergrande was too big to fail and could therefore rely on a government bailout. Now, many investors are questioning whether other developers will face similar challenges.
Chinese developers are under pressure from regulators to pay off their debts and tighten their belts after years of borrowing freely from bondholders and banks.
Beijing is now trying to limit the exposure of banks to the real estate sector, leaving companies like Evergrande and Fantasia struggling to find the cash they need to continue their operations and pay outstanding bills and bonds.
Evergrande has more than $300 billion in debts alone. Other real estate giants, such as Vanke and Country Garden, are facing debt piles worth more than $200 billion, though they are not under as much strain as Evergrande.
Investors are worried that the financial troubles will scare off home buyers and make it more difficult for other developers to continue their operations.
Chinese developers will have to make more than $28 billion in U.S. dollar bond payments in 2022, according to the agency Fitch Ratings, another signal that China’s real estate market is facing headwinds even after the country’s remarkable rebound from the pandemic.
“The risk of a sharper slowdown in real estate activity can’t be ruled out,” Tommy Wu, an economist at Oxford Economics, wrote in a recent note to clients. “Especially at a time when China’s economic momentum is slowing after last year’s strong recovery.”