Longfor Group, a major Chinese property developer, has seen its bonds fall deeper into junk status as weak home sales continue to impact the country’s struggling real estate sector. Despite government efforts to revive confidence in the housing market, investor concerns persist over declining sales and profitability.
On Wednesday, S&P Global Ratings downgraded Longfor’s long-term issuer credit rating to BB from BB+, while its senior unsecured notes were cut to BB- from BB. The downgrade reflects concerns that the developer’s contracted sales could remain under pressure due to dwindling saleable resources, making recovery a challenge.
Declining Sales and Profitability
According to S&P, Longfor’s contracted sales may shrink by an additional 13% in 2025, dropping to 89 billion yuan (US$12.3 billion). The company’s gross profit margin from property development is expected to stay low at 5-6%, compared to 11% in 2023, as it prioritizes clearing inventory over profit maximization.
“While we believe the company will be able to reduce adjusted debt of about 10 billion yuan annually in 2025 and 2026 using its growing rental and service income, weakness in property development will partially offset this improvement,” noted S&P analysts Wilson Ling and Edward Chan.
China’s Property Market Faces Ongoing Challenges
China’s property market remains in crisis, with developers grappling with low homebuyer confidence and sluggish sales. The downturn began in late 2020, when Beijing introduced measures to curb debt in the sector and prevent a housing bubble.
Country Garden, once China’s largest homebuilder, saw its contracted sales plummet 38% year-on-year in February, following a 36% drop in January for Longfor. In total, China’s new home sales value fell to 9.7 trillion yuan in 2024, marking a 43.6% decline from 2019.
Government’s Response and Stimulus Efforts
To counter the crisis, authorities launched the most significant stimulus package since the COVID-19 pandemic in September. Measures included mortgage rate cuts, lower home purchase taxes, and an expanded “whitelist” of property projects eligible for bank financing, with a funding capacity exceeding 6 trillion yuan.
During this week’s “Two Sessions” meetings—China’s annual legislative and policy-setting event—Premier Li Qiang reaffirmed commitment to stabilizing the real estate sector. He also granted city governments greater flexibility to ease or remove housing restrictions.
Housing Prices Continue to Decline
Despite government intervention, the market outlook remains bleak. Official data shows new home prices in China’s first-tier cities dropped 3.4% in January 2025 compared to a year earlier, following a 3.8% decline in December 2024. Analysts at Fitch Ratings predict that new home prices could drop by another 5% in 2025, further pressuring developers.
What Lies Ahead for Longfor and the Property Market?
With limited saleable resources, rising debt, and weak demand, Longfor faces continued financial strain. While the company’s rental and service income provides some stability, its core property development business remains vulnerable.
The broader Chinese real estate sector is unlikely to see a swift recovery, as homebuyers remain cautious and economic uncertainties persist. Developers may need to rely on further government support and adjust strategies to survive the downturn.
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