China Vanke's near-default exposes fragility of the faltering recovery in the property industry

HONG KONG (AP) — State-backed property developer China Vanke, once the country’s largest homebuilder by sales, narrowly avoided defaulting on a 2 billion yuan ($284 million) bond last week as the painfully slow recovery in China’s property market drags on.

The Chinese developer also was seeking to delay repayment of another 3.7 billion yuan ($530 million) of onshore debt due on Dec. 28, with bondholders agreeing to extend the deadline to February.

Years after the downturn in the housing market began, Chinese developers are still struggling to regain their footing, despite a slew of government policies meant to revive the industry. Weak investment and housing prices have shaken investor confidence, spilling into the broader economy since millions of homeowners are stuck with apartments worth far less than what they paid for them.

Instead of the huge driver of prosperity that it once was, the property market is weighing on the economy.

Vanke's predicament

Although Vanke's bondholders have approved extensions for repayments of its debt, the risk of a default remains.

About a third-owned by Shenzhen Metro, a state-owned railway, publicly listed Vanke's finances are a mess. Its revenue fell 27% from a year earlier in the latest July-September quarter, and several of its onshore bonds were suspended from trading after prices plunged.

The developer owes more than $50 billion, less than the more than $300 billion in debt racked up by China Evergrande, one of the first property dominos to fall when it defaulted in 2021 after the government cracked down on excessive borrowing in the industry.

Analysts say Vanke, founded in the 1980s in the southern boomtown of Shenzhen, may be testing the limits of state support for property developers in reviving the industry, which once accounted for more than a quarter of total economic activities in China.

China’s property sector is still in the doldrums

More than four years after the downturn began, China’s property sector has yet to recover. The situation varies from city to city, but overall home prices have fallen by 20% or more from their peak in 2021.

The decline has continued, with new home sales falling 11.2% by value year-on-year in the first 11 months of 2025, according to official statistics. Property investments fell nearly 16% from a year earlier.

The slump has caused massive layoffs, hurting overall consumer confidence and spending.

“The continued slide in the property market remains one of the most significant risks to China’s efforts to shift to a domestically demand-driven growth model,” wrote Lynn Song, chief economist for Greater China at ING Bank, in a recent commentary.

China Evergrande, once deemed “too big to fail” as one of the country's largest developers, ran into trouble in 2021 and eventually was forced into liquidation. Many other Chinese developers also defaulted and in some cases were restructured. Tough measures to fight Covid-19 during the pandemic took a toll as construction projects were suspended.

Restoring confidence in the property sector may take years, economists at Morgan Stanley say, and Vanke’s woes will only further weigh on its real estate market outlook. Economists at Morningstar say home prices are unlikely to rebound until 2027 due to excess supply, despite repeated pledges by regulators to stabilize the real estate market.

State support for Vanke may fall short

While Vanke's debt is way smaller than Evergrande’s was, a default would sting: It had been considered one of the financially sounder real estate developers in China.

Shenzhen Metro Group, which is controlled by the Shenzhen government, has provided more than 29 billion yuan ($4 billion) in shareholder loans to Vanke so far this year to help with its debt repayments, according to S&P Global.

That's not enough to repay its full obligations. Vanke reported 60 billion yuan ($8 billion) of cash by the end of September 2025, against short-term debts of about 151 billion yuan ($21 billion), Fitch Ratings said.

“This is one of the most significant, quasi state-backed developers that may be defaulting (on) their repayment,” said Foreky Wong, a founding partner at Fortune Ark Restructuring.

S&P Global, one of the world's main rating agencies, recently downgraded Vanke to “selective default," saying it viewed the extension of its bond repayment period as a distressed debt restructuring “tantamount to a default." Fitch Ratings also downgraded Vanke’s rating to “restricted default”.

What happens next?

Vanke -- which employed more than 120,000 people as of last year -- still faces hundreds of millions of dollars more of debt repayments in 2026. S&P said it faces more than 9.4 billion yuan of bonds maturing over the next six months.

A default by Vanke could spill over into the wider real estate sector, making it more difficult for non-state owned developers to get help, said Jeff Zhang, an analyst at Morningstar.

“Without a strong commitment by the Shenzhen government on the bailout, we think Vanke’s liquidity profile should remain fragile,” Zhang said.