China’s real estate sector has lurched from one crisis to another since 2020, when Beijing began cracking down on over-borrowing by property developers in an effort to rein in high debt and rein in skyrocketing house prices.
Founded by developer Hui Wing Mau in 2001, Shimao develops large-scale residential projects and hotels across the country. It owns the Shanghai Shimao International Plaza, one of the tallest skyscrapers located in the heart of Shanghai.
In March, the company estimated that its 2021 net profit had fallen by around 62% from a year earlier, mainly due to the “difficult” environment facing the property sector. It then delayed publishing its 2021 results, citing the Shanghai lockdown.
“Due to the significant changes in the macro environment of the property sector in China from the second half of 2021 and the impact of Covid-19, the Group has experienced a noticeable decline in its contracted sales in recent months, which is expected to continue in the near future, while the property sector property in China is stabilizing,” Shimao said in a filing on Sunday.
The company added that it was trying to reach “amicable resolutions” with creditors regarding its failure to make principal payments to other offshore companies debt. In the absence of an agreement, creditors can force the company to accelerate repayment.
The industry’s woes have been exacerbated by Beijing’s zero-Covid policy and a slowing economy. China put many of its major cities – including Shanghai – under strict lockdown earlier this year to combat rising Covid cases, which has severely affected business activity.
On Friday, a survey by China Index Academy – a property research firm – showed that new home prices in 100 cities fell by more than 40% in the first half of this year compared to the same period last year.
While there were signs that sales fell less dramatically in June than in previous months, the road to property sector recovery is likely to be “quite bumpy” as Beijing remains committed to its zero-Covid approach, analysts said of Nomura in a note on Monday.