The near collapse of China property developer Evergrande is causing jitters in the country, hitting shares and house prices.
Evergrande is £226bn in debt, leading to comparisons with the fall of investment banking giant Lehman Brothers in 2008, which helped spark the global financial crisis.
The company missed a bond repayment deadline to overseas investors, prompting Fitch ratings agency to declare that Evergrande is in default.
China’s control of the property market through banks means the government can more easily intervene than the US did in 2008.
It’s expected that the developer will be restructured and potentially split into units to try and salvage the situation.
Meanwhile Kaisa, another developer in the country, has seen its shares fall by 15.2% after it missed a £315m bond payment.
The group is in talks with bondholders, as it looks to restructure the business.
There are fears that new buyers could be put off buying new homes if house prices fall.
Growth in the prices of new homes, an important metric in a country with huge levels of construction, turned negative month-on-month in September and worsened in October.
Shares of Chinese Estate Holdings, a Hong Kong-based property group, dropped by 35.2% after a bid to take the company private and reduce its exposure to Evergrande failed.
Meanwhile The Hang Seng Mainland Properties index, which tracks the Hong Kong-listed shares of 10 of China’s biggest developers, lost as much as 5.3%.
China’s central bank and banking regulator urged the country’s financial institutions to support “high-quality” real estate investments, according to a report in the government-backed Financial News agency on Monday.
