China’s biggest property developers are still struggling to sell homes, as a resurgent Covid-19 pandemic combined with a slowing economy to deter big-ticket investments, offering little respite to the most leveraged among them. The collective sales value of China’s top 100 developers fell 41 per cent in January from last year to 526.6 billion yuan (US$82.7 billion), widening the slump from the 38 per cent contraction in December, according to the China Real Estate Information Corporation, which compiles industry data. Contracted sales is the primary cash stream for home builders in China, and presale accounts for nearly 90 per cent of new home sales and more than half of developers’ funding, according to Nomura Holdings, Japan’s biggest brokerage. “Diminishing home sales will lead to a deteriorating situation at the developers as it dries up their funding channels. They can neither make more money from selling properties nor borrow money from issuing bonds or get loans,” said Yan Yuejin, director of Shanghai-based E-house China Research and Development Institute. Fantasia’s home sales slumped the most in China last month. Photo: Bloomberg Fantasia Holdings Group, which defaulted on a US dollar bond in October, led the sales plunge. The Shenzhen-based developer, which has some US$297 million of notes maturing in the first half, sold 510 million yuan (US$80.2 million) worth of homes in January, 78 per cent lower compared with last year. Modern Land (China), which also defaulted on an offshore bond in October, reported contracted sales of 691.50 million yuan in January, 71 per cent lower compared with a year earlier. Sunac China Holdings, carrying US$600 million offshore bonds due in June and downgraded by Fitch Ratings for its decreasing financing flexibility, said that its contracted sales in January yielded 27.92 billion yuan, down more than 20 per cent from last year. Even some restrained borrowers like Country Garden Group, the country’s biggest developer by sales, saw lacklustre performance. The Foshan-based developer said its contracted sales in January were 36.36 billion yuan, 10 per cent lower than last year. “If it [lower sales trend] continues, we may see more developers having trouble repaying their creditors,” Yan said. While China Evergrande Group, Fantasia, Modern Land and Kaisa Group Holdings have defaulted on their offshore debt amid a liquidity crunch in recent months, others have joined the list this year. China Aoyuan Group and Yuzhou Group said they cannot service their US dollar notes. Chinese real estate companies still face US$30.8 billion in offshore bond payments and US$30.2 billion in domestic bonds this year, according to Moody’s. Looking forward, analysts expect the housing market to remain soft because of depressed sentiment among homebuyers in mainland China. Beijing, however, is taking steps to boost the property market. It reduced the five-year loan prime rate – a reference rate for mortgages – by 0.05 per cent to 4.6 per cent on January 20. “It is hard to stay positive now as we did not see much of a rebound in transactions during the Lunar New Year, which may lead to developers recording even weaker home sales in February,” said Li Yujia, senior economist with the Real Estate Assessment and Development Research Centre, a research arm of the Shenzhen government. Moody’s expects homes sales across the country to fall by 5 per cent to 10 per cent for the whole year.