China property market faces long recovery road despite restructuring progress

Over the past few months, several major Chinese developers have secured fresh approvals for their debt restructuring plans, with creditors accepting substantial haircuts in hopes of recovering what is left of their funds.

Analysts call it a “positive signal”. Yet cash-strapped builders face relentless liquidity woes and may be forced into drastic price cuts to offload unsold properties.

In other words, the three-year slump in China’s property market shows no clear signs of resolution.

“Too much inventory, too little confidence,” S&P said in a report in October. “Addressing this imbalance is key to improving China’s beleaguered property market. The market has swung in favour of homebuyers, but before they jump in, they will need signs that developers are healthy.”

The new plan features US$2.2 billion in new debt, alongside US$4.02 billion in mandatory convertible bonds and perpetual securities. It offers little improvement in terms of fund recovery, but will “significantly enhance creditors’ outcomes compared to a liquidation”, according to Liu Yi, managing partner and liquidation and reorganisation team leader at Shanghai-based Everbright Law Firm.