China real estate bubble bursts

Dollar bonds sold by China real estate companies this year are the worst performers among Asian non-financial corporate debt denominated in the US currency amid concern the nation’s property market is overheating.

Yields on the $3.9 billion of bonds issued by Kaisa Group Holdings, Country Garden Holdings and seven other developers since January widened by an average 2.26 percentage points relative to Treasuries as of last week, according to data compiled by Bloomberg. That’s more than the 2.05 percentage-point increase in spreads for the seven dollar-denominated bonds sold by other companies in Asia outside Japan.

Investors are demanding greater yields to lend to China property firms, a sign they expect borrowers will have a harder time meeting debt payments amid a government clampdown down on lending. Goldman Sachs and Credit Suisse cut their profit estimates for Chinese real estate companies after a 12.8 per cent jump in real estate prices in April from a year earlier spurred the state to increase regulation.

“New issues by Chinese developers will stall for the time being,” Vince Chan, the Hong Kong-based chief credit strategist with Amias Berman & Co, a fixed-income advisory and brokerage firm founded by two former Citigroup bankers, said in a phone interview. “Investors need handsome rewards for getting exposed to weaker fundamentals.”