China’s Country Garden Buys Time to Repay Debt

HONG KONG—China’s top surviving private developer bought more time to sort out its liquidity problems, giving investors hope that it will cobble together enough cash to avoid defaulting on its U.S. dollar bonds this week.

Country Garden Holdings on Friday said it got approval from investors in mainland China to extend the maturity date of $537 million in domestic bonds by three years. The yuan-denominated debt was originally due Monday. An offshore unit of the 31-year-old property giant separately made an interest payment of around $600,000 on a bond denominated in Malaysian ringgit on Monday, according to a person familiar with the matter.

The debt extension and bond payment created optimism that Country Garden can address a debt load that includes a range of foreign currency bonds—and a make-or-break interest payment this week.

The developer’s Hong Kong-listed shares jumped 15% on Monday, closing at their highest level in about three weeks. Other Chinese property stocks also gained, while the broader Hang Seng Index rose 2.5%.

Country Garden’s bond prices also edged higher, although most of its dollar bonds remained below 10 cents on the dollar, levels that indicate a high probability of default.

Chinese authorities have taken more steps in recent days to shore up the country’s beleaguered housing market, where sales have declined for most of the last two years. Last Thursday, the People’s Bank of China lowered minimum down payments on first and second home purchases and told banks they can lower the rates on existing mortgages. Regulators also recently expanded the definition of a first-time home buyer, a category that comes with lower mortgage rates and smaller down payments.

The rule changes helped to draw more people to real estate showrooms over the weekend. Demand for new homes in Shanghai increased noticeably after the new measures were implemented, according to Chen Julan, a senior analyst with China Index Academy. In Beijing, some developers withdrew discounts and adjusted their prices slightly higher, the research firm said.

The new rules could give a temporary boost to home sales in about a dozen major cities, said Song Hongwei, a research director of Tongce Research Institute, which tracks and analyses China’s real-estate market. He said lower-tier, poorer cities may not reap similar benefits and predicted that the overall housing market will eventually weaken again.

Country Garden’s recent cash crunch has largely been a result of slumping home sales in many parts of China. The company is one of the biggest surviving privately run developers and has a large presence in the country’s poorer regions. In August, it sold homes valued at a total of around $1.1 billion, almost three-quarters lower than a year earlier.

The company missed $22.5 million in coupon payments on bonds with a total face value of $1 billion in early August, and has a 30-day grace period to come up with the money. That grace period expires this week.

Even if it does pay the interest on its dollar bonds this week, it has many more coupon payments due in the coming months. Investors are skeptical that it can avoid default—unless its sales start growing again. Country Garden’s most recent financial report said that as of June 30, it had the equivalent of $15 billion in bonds, bank debt and other borrowings due within a year.

The company lost more than $7 billion in the first half of 2023, its worst financial performance since it went public in 2007, after its contracted sales for the period shrank 30%. Country Garden told investors it was “deeply remorseful” but said it was committed to turning things around.

China’s economy has struggled through much of this year, with falling exports, weak manufacturing and a slowdown in consumer spending all pointing to problems broader than a property slowdown. But cracks in the property sector, which was once seen as a major source of wealth creation in China, are exacerbating the broader economic malaise.

Chinese property developers’ falling property margins and weak sales will weigh on earnings until the end of next year, according to analysts at S&P Global Ratings. Not all developers will feel the same degree of pain. Those with links to the government or with good access to financing are better positioned to endure the fall in margins, the S&P analysts said in a note on Monday.

Former President Donald Trump said he would ban undocumented immigrants from obtaining home mortgages, a move he indicated would help ease home prices even though these buyers account for a tiny fraction of U.S. home sales.

Home loans to undocumented people living in the U.S. are legal but they aren’t especially common. Between 5,000 and 6,000 mortgages of this kind were issued last year, according to estimates from researchers at the Urban Institute in Washington.

Overall, lenders issued more than 3.4 million mortgages to all home purchasers in 2023, federal government data show.

Trump, the Republican presidential nominee, made his comments Thursday during a policy speech to the Economic Club of New York in Manhattan.

Housing remains a top economic issue for voters during this presidential election. Rent and home prices grew at historic rates during the pandemic and mortgage rates climbed to levels not seen in more than two decades. A July Wall Street Journal poll showed that voters rank housing as their second-biggest inflation concern after groceries.

Both major candidates for the 2024 presidential election have made appeals to voters on housing during recent campaign stops, though the issue has so far featured more prominently in Vice President Kamala Harris ’s campaign.

Trump has blamed immigrants for many of the nation’s woes, including crime and unemployment. Now, he is pointing to immigrants as a cause of the nation’s housing-affordability crisis. Yet some affordable-housing advocates and real-estate professionals said Trump’s mortgage proposal would fail to bring relief to priced-out home buyers.

“It’s unfortunate that given the significant housing affordability crisis that is widely acknowledged across most partisan lines, we are arguing about a minuscule segment of the market,” said David Dworkin, president of the National Housing Conference, an affordable-housing advocacy group.

Gary Acosta, chief executive of the National Association of Hispanic Real Estate Professionals, a trade organization, said, “It’s just another effort to vilify immigrants and to continue to scapegoat them for any issues that we have here in the United States.”

A Trump campaign spokeswoman didn’t immediately respond to a request for comment.

Undocumented immigrants in the U.S. can obtain an obscure type of mortgage designed for taxpayers without Social Security numbers, most of whom are Hispanic. The passage of the USA Patriot Act of 2001 allowed banks to use identification numbers from the Internal Revenue Service as an alternative to Social Security, extending a number of financial services to people without legal status for the first time.

Mortgage loans for undocumented immigrants are typically higher interest and borrowers include legal residents who have undocumented spouses, Acosta said. Lenders include regional credit unions and community-development financial institutions.

In his speech, Trump said that “the flood” of undocumented immigrants is driving up housing costs. “That’s why my plan will ban mortgages for illegal aliens,” he said.

Trump didn’t elaborate on how he would enact a ban on such loans.

Though mortgages for undocumented people living in the U.S. are relatively rare, residential real-estate purchases by foreign nationals are big business , especially in expensive coastal cities such as New York and Los Angeles. These sales have declined in recent years, however.

Close to half of foreign purchases are made by people residing abroad, while the other half are made by recent immigrants or residents on nonimmigrant visas, according to an annual survey by the National Association of Realtors. Many affluent foreigners buy U.S. homes with cash instead of obtaining mortgage financing.

In his Thursday speech, which focused mostly on other economic matters such as energy and taxation, Trump proposed other measures to bring down housing costs, including cutting regulations for builders and allowing more building on federal land. Similar ideas appeared in the housing policy outline Harris released in August .

The former president has spoken on housing-related issues in speeches at other recent campaign stops, including in Michigan last month, where he touted his administration’s 2020 overturn of a policy that had encouraged cities to reduce racial segregation .

“I keep the suburbs safe,” Trump said. “I stopped low-income towers from rising right alongside of their house. And I’m keeping the illegal aliens away from the suburbs.”

China’s Country Garden Buys Time to Repay Debt—but Not Long

The property giant has a second chance to make an interest payment this week

The Republican nominee says it would help bring down home prices, though these buyers account for a fraction of U.S. home sales