Loan not serviced: Default at real estate group Shimao

The real estate industry is important for China’s economy, but has been in crisis for months. Now the Shimao group is starting to falter. He could not make payments due for a billion-dollar bond.

The real estate group Shimao has been in financial difficulties for a long time. But now the company’s crisis is escalating dangerously – creditors waited in vain for interest and repayment figures due for a billion-dollar bond traded on the Singapore stock exchange. The Shimao Group justified the default with “market uncertainties” and “difficult operating and financing conditions.”

It is the biggest default in China’s real estate sector this year. The Shimao Group builds condominiums, hotels and office buildings, primarily in metropolises such as Shanghai and Beijing, and is one of the 15 largest real estate developers in China, according to the financial news agency Bloomberg.

Real estate developers play an important role

The construction industry, which is important for China’s economic growth, has been under pressure for months. Because of weeks of corona lockdowns like in Shanghai, real estate sales have collapsed – in April alone by more than 46 percent compared to the same month last year. Many large corporations have also been in crisis for some time. The heavily indebted real estate giant Evergrande also had difficulties repaying loans. This has spooked many potential homebuyers who fear homes will not be completed and they could lose their savings.

In China, houses and apartments are often financed on credit. The corporations borrow money for the development of real estate projects. Many people pay in advance to buy apartments that have not yet been built. Since 2020, the Chinese government has started tightening regulation of the real estate sector to curb speculation on houses and apartments.