Call to ease liquidity woes of realty firms

As a prolonged sales slump and mounting debt maturities intensify pressure on Chinese property developers, experts have called on policymakers to roll out more forceful measures to halt the market slide and ease the liquidity strain gripping realty companies.

Their comments came after China Vanke Co Ltd, one of the country's largest property developers, called a bondholder meeting to seek an extension on a 2 billion yuan ($282.82 million) medium-term note due in December, as it faces mounting short-term repayment pressure, according to a notice posted on the Shanghai Clearing House on Nov 26.

Vanke said holders of "22 Vanke MTN004" will meet on Dec 10 to vote on a proposal to extend the principal repayment. The note carries a 3 percent coupon and is scheduled to mature on Dec 15.

Vanke's shares and bonds fell sharply after news of the planned debt extension triggered renewed pressure on the developer's funding outlook.

Analysts at the China Index Academy said that if the extension is approved before maturity, it would not constitute a default in the technical sense. But the extension plan could inflict significant damage on both the company and the industry.

For Vanke, it signals severe deterioration in its repayment ability and could worsen financing conditions. Homebuyer confidence may weaken, hurting sales and cash collection at a time when the company's operations are already under pressure, according to the academy.

The institute added that the implications for the broader market are also negative.

Once regarded as a bellwether and "spiritual leader" of China's property sector, Vanke's deepening debt troubles could weigh heavily on sentiment, undermining expectations of stabilization and recovery in the real estate market.

"Vanke's situation makes it clear that the sector can no longer borrow and build its way out of trouble. The path forward hinges on 'self-generated liquidity' — profitability, sound cash flow and operational efficiency," said Zhang Bo, director at the 58 Anjuke Research Institute.

Vanke has 5.7 billion yuan of onshore bonds coming due in December, including the 2 billion yuan note proposed for extension and another 3.7 billion yuan that must be repaid, according to the institute.

The next two years also mark a peak in its repayment schedule, with more than 12 billion yuan in onshore maturities in 2026 and about 7 billion yuan in offshore debt plus more than 3 billion yuan in onshore debt in 2027.

As of Nov 12, Shenzhen Metro, Vanke's largest shareholder, had provided about 30.8 billion yuan in loans to support the company.

"Despite Shenzhen Metro providing a substantial credit line, such support must be framed within the boundaries of shareholder responsibilities, and strictly follow market-oriented principles, rather than constituting unconditional bailouts," said Li Yujia, chief researcher at the residential policy research center of the Guangdong Planning Institute.

Li added that the continued downturn in new home sales — still well below their 2021 peak — has eroded developers' profit margins and internal solvency, while maturing debts from past years have further intensified liquidity pressure.

According to data from the National Bureau of Statistics, in the first 10 months of this year, total sales of newly built commercial housing nationwide stood at 6.9 trillion yuan, down 9.6 percent year-on-year. Residential sales accounted for 6.07 trillion yuan of that total, reflecting a 9.4 percent decline from the same period last year.

To address mounting pressures in the property sector, Chinese policymakers could consider putting in place a national-level "real estate stabilization fund", said Luo Zhiheng, chief economist and president of the Research Institute at Yuekai Securities.

With an initial capital target of about 2 trillion yuan, a portion of the fund could be dedicated to providing support for troubled but still viable residential projects to ensure the delivery of presold homes, Luo said.

The fund could also be used to acquire a portion of the idle land holdings from property companies, to provide immediate liquidity to developers, Luo added.

Financial regulators could roll out supportive policies, including dedicated acquisition loans and an optimized financing "whitelist "mechanism, to provide sufficient credit support and facilitate market-based mergers and acquisitions. This will help foster survival of the fittest and enable a healthy reshaping of the industry landscape, Luo said.