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Goldman Sachs: Defaults on Chinese high-yield property bonds to remain elevated in 2024 amid weak property sales

  • The default rate will reach 35 per cent in 2024 after hitting 42.2 per cent in the first nine months of 2023, the investment bank predicts
  • In Asia’s high-yield bond space, Goldman prefers credit issued by Macau gaming companies and commodities companies

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A view of Country Garden’s Phoenix City development in Suzhou, Jiangsu province, China, on November 2, 2023. Photo: Bloomberg
Jiaxing Li

The default rate for Chinese high-yield property dollar bonds will remain elevated next year as property sales continue their slide, putting more strain on already stressed liquidity conditions, according to Goldman Sachs.

China’s default rate for high-yield property bonds has reached 42.2 per cent so far this year, slightly below a record 46.8 per cent in 2022, Goldman strategists including Kenneth Ho said in a report to clients over the weekend. The rate is likely to hit 35 per cent in 2024, they predicted.

“Our China property team expects difficult market conditions to continue,” the US investment bank said. Primary property sales will decline by 5 per cent year on year in 2024 as increasing supply in the secondary market adds to pricing pressure, which could create a negative feedback loop on price and volume in the primary market.

“Liquidity pressures will remain challenging for China property [high-yield] developers, and defaults will continue,” they said.

An aerial photo taken on October 9, 2023 shows residential buildings under construction by Chinese developer Vanke in Nanjing, in China’s eastern Jiangsu province. Photo: AFP
An aerial photo taken on October 9, 2023 shows residential buildings under construction by Chinese developer Vanke in Nanjing, in China’s eastern Jiangsu province. Photo: AFP

China’s dollar-denominated high-yield bonds, dominated by property-sector issuers, have handed investors a 23.2 per cent loss so far this year, after a 33 per cent slump in each of the past two years, according to the ICE Bank of America Index.

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