China’s Housing Crisis Spills Over to Hong Kong—Major Developers Seek Help to Avoid Collapse

As China’s real estate crisis enters its fifth year, concerns are growing that the property market slump weighing on the Chinese economy could spread beyond the mainland.

According to Bloomberg, there was no sign of improving debt repayment conditions for real estate developers because of the ongoing decline in housing sales.

A prime example is the default warning from Vanke, China’s fourth-largest property developer by sales.

Chinese financial regulators recently instructed major insurance companies to report the scale of their financial exposure to Vanke to assess the level of support needed to prevent a default.

In addition, Vanke’s management has reportedly been pleading with several insurance companies in recent weeks not to exercise put options on certain soon-to-mature bonds.

Analysts at Jefferies, including Shujin Chen, predict that Vanke could face a liquidity shortage earlier than expected if real estate sales fail to rebound, asset disposals proceed slowly, and financial institutions become more cautious and demand additional collateral.

They added that they still estimate the likelihood of government intervention for Vanke to be less than 50%.

The real estate crisis in mainland China now appears to be spreading outside. Recently, Hong Kong-based New World Development reportedly asked banks to extend the maturity of some loans.

As of late June, New World Development’s total debt stood at 220 billion HKD (approximately 28 billion USD), and the company recorded its first annual loss in nearly two decades.

Bloomberg emphasized that New World Development’s debt issues are an ominous sign that China’s real estate problems are spreading outside the mainland.

In another case, Hong Kong-based Parkview Group has put up its Beijing shopping and cultural complex, Fangcaodi, for sale due to high loan interest rates and low occupancy.

Daniel Fan, a senior credit analyst at Bloomberg Intelligence, noted that many Hong Kong developers invest in the Chinese real estate market, which is not showing strong signs of recovery. Meanwhile, the Hong Kong market itself is still adjusting. He added that Hong Kong firms are facing challenges on both fronts.

The Chinese real estate crisis was initially triggered by Evergrande’s default in 2021.

Leonard Law, a senior credit analyst at Lucror Analytics, said that while recent government stimulus measures have helped slow the decline, the market could decline in one to two years.