HONG KONG – China Vanke, a prominent state-supported property developer, recently avoided defaulting on a significant financial obligation by the narrowest of margins. The company, which was once the top homebuilder in China based on sales, faced the looming threat of defaulting on a 2 billion yuan ($284 million) bond last week, highlighting the ongoing sluggish recovery of the nation’s property market.

In a bid to manage its financial commitments, China Vanke also sought to defer the repayment of an additional 3.7 billion yuan ($530 million) in onshore debt, originally due on December 28. Bondholders have agreed to extend this deadline to February, offering a temporary reprieve.

Despite several years having passed since the housing market downturn began, Chinese property developers continue to face significant challenges in stabilizing their operations. This is in spite of numerous governmental measures aimed at rejuvenating the sector. The lack of robust investment and stagnant housing prices have eroded investor confidence, impacting the broader economy. Many homeowners find themselves trapped with properties that have depreciated considerably, leaving them with assets worth much less than their purchase price.

What was once a powerful engine of economic growth, the property market is now seen as a burden on China’s economic health.

China Vanke’s current challenges exemplify the broader issues plaguing the real estate sector in China, as the company navigates these turbulent financial waters.

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.