Sales of property-related trusts in China plunged 49% in the January-March quarter as the collapse of Zhejiang Xingrun Real Estate, a closely held Chinese property developer, drew investor attention to default risks.
Sales of property trusts, which target wealthy investors, dropped to 50.7bn yuan ($8.16bn, £4.86bn, €5.87bn) in the first quarter, from 99.7bn yuan in the fourth quarter of 2013, according to Use Trust data.
New property trust offerings accounted for 30% of total trust sales in the January to March period, down from 33% in the final quarter of 2013, according to Use Trust.
Challenging Year Ahead
Concerns surrounding default risks would make things difficult for developers looking to raise funds in 2014, a Bloomberg poll of analysts revealed.
This year could prove to be the most challenging for Chinese realty players since the short-term shock in 2008-09 in the aftermath of the global financial crisis, said David Cui, China strategist at Bank of America.
"There is high probability that some property trust products will default this year," Cui told Bloomberg.
"The banking system and the shadow banking system are becoming concerned about exposure. Once people refuse to provide credit to developers, their balance sheets will be under pressure, forcing them to cut prices. Once enough of them cut prices, fewer people would buy because most people buy property only when they think the price is going up. If this persists, it will turn into a vicious loop," Cui added.
Realty Lending Risks
A unit of Chia Sports Industry was unable to repay 144m yuan of principal on a 600m yuan trust loan for a sports centre project, according to a 4 April filing with the Shanghai Stock Exchange.
China's third-largest lender, Agricultural Bank of China, last week warned its branches about risks from real estate lending, unnamed sources told the news agency.
Premier Li Keqiang has said Beijing will regulate the housing market "differently in different cities" to factor local conditions.
Zhejiang Xingrun is based in the eastern town of Fenghua. The firm's collapse with 3.5bn yuan of debt in March added to default concerns as realty firms struggle with trust repayments comparable to the size of Puerto Rico's economy this year.