What Happened to China Property What’s Next The Default

Summary of the Conference Call on China Property Sector Industry Overview - The conference call focuses on the China property sector, specifically discussing the ongoing default cycle that began in early 2021 and has lasted over four years [1][2]. Key Points and Arguments 1. Default Cycle Duration: The China property sector is nearing the end of a prolonged default cycle that started in early 2021, with 44 high-yield property issuers defaulting on their offshore USD bonds [1][8]. 2. Magnitude of Defaults: The total amount of defaults in the China property sector has reached approximately USD 127 billion, marking the largest default wave in the Asia high-yield credit market [12]. 3. Recovery Rates: The credit market is currently pricing an expected recovery rate of only 7.2% for distressed or defaulted China high-yield property bonds, significantly lower than the typical recovery rate of around 30% for Asia senior unsecured USD corporate bonds [31]. 4. Sector's Market Share: The China property sector's influence has diminished, now representing only 2% of Asia credit, 3% of Asia corporates, and 11% of Asia high-yield, down from 50% of Asia high-yield at its peak in 2021 [20][22]. 5. Debt Restructuring: Only six defaulted China property issuers are actively engaged in debt workouts, with 40% facing winding-up orders or petitions [25][26]. 6. Contracted Sales: Improvement in contracted sales is deemed crucial for the recovery of the China property sector, with expectations of a 10% drop in primary sales volume in 2025 [43][44][47]. 7. Market Performance: The physical property market is expected to bottom out in the fourth quarter of 2025, but the recovery path is anticipated to be slow and challenging [10][43]. Additional Important Insights - Default Rate Trends: The default rate for China high-yield property peaked at nearly 60%, but has shown signs of slowing down in recent months [16]. - Issuer Performance: A screening of performing China high-yield property credits identified seven issuers whose bonds are trading above distress levels [50]. - Vanke's Position: Vanke is highlighted as being at a crossroads, with its bonds trading around 65 cents, indicating low confidence from the credit market [39][41]. This summary encapsulates the critical insights from the conference call regarding the current state and future outlook of the China property sector, emphasizing the challenges and potential recovery pathways.