Country Garden, China’s biggest property developer as recently as 2022, said on Wednesday that a creditor had asked a Hong Kong court to liquidate its business and pay off lenders, in the latest sign that China’s housing crisis continues unabated .
Ever Credit Ltd., a lender in Hong Kong, is asking the city’s High Court to close Country Garden. The court filing concerns Country Garden’s failure to repay a $204 million loan plus interest owed to Ever Credit, the Hong Kong-listed property developer said.
Ever Credit’s petition, known as a liquidation petition, is intended to force Country Garden to close its doors and sell off its assets to raise money it can use to repay its creditors. The move follows the Supreme Court’s ruling last month on the liquidation of China Evergrande. Country Garden dethroned Evergrande as China’s largest developer in 2021 when Evergrande suffered a financial meltdown.
Country Garden said it would fight the court application “vigorously” and that the first hearing on the petition was scheduled for May 17.
More than 50 Chinese real estate developers have defaulted on their debts as of 2021. They have refused to repay overseas creditors while still making arrangements with Chinese banks for possible eventual repayment.
Many of these developers have shares listed on the Hong Kong stock exchange or have borrowed there, or both. But creditors face formidable obstacles in seeking loans from Chinese property developers through reports in Hong Kong’s court system, said Zerlina Zeng, head of East Asia corporate credit at CreditSights, a global credit research firm.
Most of the Chinese developers’ assets are located in mainland China, where courts may not recognize liquidation orders from Hong Kong. Even if mainland courts order liquidation of developer building sales, China’s increasingly tight limits on moving money out of the mainland could make it harder for creditors to get their hands on the proceeds of those sales.
“We don’t think the liquidation order could improve the recovery rate” for debt repayment, Ms. Zeng said.
Country Garden essentially ran out of money last October to pay off debts. Households in China have sharply cut back on apartment purchases from private sector developers such as Country Garden as house prices have plummeted over the past two years.
Without cash from the ongoing sales, the developers were unable to finish building the millions of apartments they had presold to buyers across China. Japan’s Nomura Securities estimated last month that 20 million pre-sold homes were waiting to be completed in China and would take $450 billion to complete.
China’s property developers have relied for many years on selling apartments before they are built and then using the cash to finish other apartments previously promised to other buyers. But that economic model has collapsed as households have balked at dealing with private sector developers who have had trouble completing previous deals.
Country Garden’s pre-sales of unfinished apartments plummeted 74 percent in the second half of last year from the same period in 2022. And China’s overall real estate industry’s woes are getting even worse this year, with preliminary data showing that sales have fallen by 40 percent. Lunar New Year earlier this month compared to the same holiday last year.
Mainland China isn’t the only one facing real estate problems right now – they’ve spread to Hong Kong as well. Paul Chan, the city’s financial secretary, said Wednesday in his annual budget speech that he would scrap measures previously aimed at curbing apartment speculation in Hong Kong.
