Goldman: "Chinese Real Estate Slumps Again... Junk Bond Default Concerns Rise"

Default rate forecast raised from 19% to 28%
Top 100 Chinese real estate developers
June new home sales down 28.1%
Buyer sentiment weakens despite government stimulus

As the Chinese real estate market enters a recession phase, concerns over defaults on speculative-grade bonds (junk bonds) have increased.

Goldman Sachs forecasted on the 2nd (local time) that the delinquency rate of speculative-grade bonds issued by related companies will surge as the Chinese real estate market shows signs of recession again after the reopening (economic restart) earlier this year. Goldman Sachs also raised its default rate forecast for dollar-denominated junk bonds of Chinese real estate companies from the previous 19% to 28%. The default rate recorded last year was 17.8%.

Goldman Sachs analysts Kenneth Ho and Cha Ki Ting stated in an investment note, "Since early this year, companies that issued dollar-denominated junk bonds have either failed to repay the bonds or have postponed repayment through new bond exchanges or extensions of bond maturities."

The Chinese real estate market has entered a recession phase. According to market information firm China Real Estate Information Corporation (CRIC), the new home sales amount of the top 100 real estate developers in China in June was 526.7 billion yuan (approximately 95.27 trillion won), down 28.1% year-on-year. The number of home sales also declined compared to the previous month. The growth rate of new home sales showed a brief increase from February to May but shifted to a decline phase after recording 31.6% in April, which was a 2.3 percentage point drop from the previous month. Subsequently, sales rates sharply decreased to 6.7% in May and -28.1% in June.

Although the government has stepped in to stimulate the economy, it is difficult to reverse the weakened purchasing sentiment. Last year, the government announced 16 real estate stimulus measures, including easing loan regulations for real estate developers and adjusting the loan-to-value ratio (LTV) for mortgages. The real estate sector accounts for about one-quarter of the Chinese economy, and with related companies such as the Evergrande Group falling into default, measures are being taken to address the situation.

Goldman Sachs emphasized that authorities need to send stronger signals of regulatory easing to the market. Analyst Kenneth Ho said, "Investors are currently disappointed by the lack of stronger regulatory easing measures," adding, "If no meaningful policies are announced additionally, defaults on junk bonds are expected to continue."

This content was produced with the assistance of AI translation services.