Chinese Developers’ Debt Delinquencies Expected to Increase

Smoke and mirrors practices among Chinese business and government may have surfaced again as Chinese builders get dangerously close to defaulting on bonds.

To summarize, Chinese developers have been aggressively strengthening their land holdings of Chinese real estate through acquisition of debt. Companies, such as China Vanke and China Evergrande Group have relied on support of stock investors to make this happen. However, this support is now on the decrease as China’s economic growth slows and policymakers pursue a financial deleveraging campaign.

In the past year, 75 percent of Chinese developers have seen their default risk climb. Zhonghong Holding Co. is now has overdue debt of $3.5 billion yuan. Earlier this year, Zhonghong had defaulted on more than US$174 million in debt.

In total, it is estimated that Chinese builders will have to pay back US$96 million worth of bonds domestically and internationally through 2019.

Paul Lukaszewski of Abertdeen Standard Investments, told Bloomberg that he expects delinquencies to increase moving forward. Especially, companies that have financed themselves on a shorter-term basis are increasingly at risk of potential defaults.

Investors are nervously watching these Chinese developer stocks and for good reason.

On the other hand, Canadian real estate has shown a 20 year appreciation in value and continues to offer a safe and direct investment option. Even with a 15% foreign buyer’s tax, Ontario real estate continues to be among the most attractive in the world. For little know tips and facts on Ontario Foreign Buyer’s Tax exemptions refer to my video with Mark Weisleder. Mark is a prominent Toronto Real Estate Lawyer and he shares important to know details of the Ontario Real Estate Foreign Buyer’s Tax.

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Baldo Minaudo, M.B.A., Broker, Real Estate Homeward Brokerage