Goldman Sachs Is Optimistic Over China's Real Estate Recovery and Sees Potential for High Returns of Private Enterprises’ Real Estate Bonds

Goldman Sachs recently believes that as the business outlook improves, the high-yield US dollar bonds issued by Chinese real estate companies could potentially bring high returns.

China's new home sales rose for a second straight month in March, latest data showed, pointing to a revival in the country's real estate sector fueled by a series of measures introduced by Chinese regulators starting late last year.

Private real estate bonds have high return potential

Salman Niaz, head of Asian fixed income at Goldman Sachs Asset Management, said: "In our view, there are currently high-return opportunities from private real estate developers - both from those companies that have not defaulted, and from those who have defaulted.”

Private developers have been hit particularly hard by a liquidity crunch among Chinese property developers over the past two years, leading to record defaults last year.

“Our view is that most defaults are done,” he said. “There may be some more defaults or bad deals, but from a systemic perspective, most of the pain is over.”

Debt restructuring has progressed

In addition to rising home sales, there has also been progress in debt restructuring. Both China Evergrande and Sunac China have recently announced that they have reached an agreement with a group of overseas creditors on an overseas debt restructuring plan.

Niaz predicts that companies with large, diversified businesses, operations in high-quality cities and strong management teams will generate better returns for credit investors.

After China lifted its Covid restrictions and supported the recovery of the real estate industry, China's real estate bonds climbed further in January this year.

"We like the theme of China's re-opening and also think the outlook for the Chinese real estate industry is positive, but there may be some near-term volatility," Niaz said, "We have to be very cautious because not all developers are the same type. "