China property flare-ups resurface as debt crisis enters fifth year

As China's property debt crisis enters its fifth year, there is little indication that distressed developers are finding it easier to repay debt as a slump in home sales continues.

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One of China's leading developers is now on the authorities' radar for default risk. A major Hong Kong builder is asking lenders to extend loans. Another industry peer is selling an iconic but largely empty mall in Beijing.

Their dollar bonds are still trading at deeply distressed levels, their debt issuance has nearly dried up, and the sector is a notable laggard in stock markets.

Alarm bells went off again in recent weeks, when the banking regulator told top insurers to report their financial exposure to China Vanke to assess how much support the country's fourth-largest developer by sales needs to avoid default.

Over in Hong Kong, New World Development sought to delay some loan maturities while Parkview Group put up a landmark commercial complex for sale in Beijing.

The latest signs of stress are adding to concerns that the worst is far from over for the housing sector in the world's No. 2 economy, once a powerful growth engine and now a big drag on demand for items from furniture to cars.

They are particularly worrying because Vanke's woes show the liquidity crisis is hurting one of the few big builders that have avoided default so far.

The trouble faced by its Hong Kong peers, meanwhile, means the contagion is increasingly felt offshore.

"While recent government policies have helped to arrest the speed of decline, it could take another one or two years for the sector to bottom," said senior credit analyst Leonard Law at Lucror Analytics.

"Against this backdrop, we can't rule out the possibility of some more defaults next year, albeit the overall default rate should be much lower than before."