LONDON - Chinese investors and their creditors are putting up “For sale” signs on real estate holdings across the globe as the need to raise cash amid a deepening property crisis at home trumps the risks of offloading into a falling market.

The prices they get will help finally put hard numbers on just how much trouble the wider industry is in.

The worldwide slump triggered by borrowing cost hikes has already wiped more than US$1 trillion (S$1.35 trillion) off office property values alone, said Starwood Capital Group chairman Barry Sternlicht last week.

But the total damage is still unknown because so few assets have been sold, leaving appraisers with little recent data to go on.

Completed commercial property deals globally sank to the lowest level in a decade in 2023, with owners unwilling to sell buildings at steep discounts.

Regulators and the market are nervous that this logjam could be concealing large, unrealised losses, spelling trouble both for banks, which pushed further into real estate lending during the cheap money era, and asset owners.

New York Community Bancorp touched a 27-year low on Feb 6 after slashing its dividend and stockpiling reserves, in part because of troubled real estate credit.

The European Central Bank is concerned that banks in the region have been too slow to mark down the value of loans and the UK’s Financial Conduct Authority is to review valuations in private markets, including real estate.

Now, a new batch of overseas assets acquired in a decade-long Chinese expansion spree is starting to hit the market as landlords and developers decide they want cash now to shore up domestic operations and pay off debts – even if that means taking a financial hit.

Beijing’s crackdown on excessive borrowing has left few developers unscathed, even those once considered major players.

A unit of China Aoyuan Group, for example, which is in the middle of a US$6 billion debt restructuring plan, sold a plot in Toronto at about a 45 per cent discount to the 2021 purchase price late in 2023, according to data provider Altus Group.

“With motivated sellers, the market freeze could thaw, improving transparency and price discovery,” said Bloomberg Intelligence credit analyst Tolu Alamutu.

“Portfolio valuations may have further to fall.”

With every transaction, the market gets more clarity about the capitalisation rate – a measure of the return an investor is willing to do a deal at.

That data will then be used by appraisers to value other assets, which could trigger wider impairments.

As a consequence, landlords may have to inject more money to cure any loan-to-value breaches or risk having the properties seized by lenders.

While so far there has been only a trickle of Chinese-owned sales in Europe, the volume is starting to grow again.

Just this week, distressed developer Guangzhou R&F Properties agreed to sell its stake in a £1.34 billion (S$2.28 billion) property project in London’s Nine Elms district in return for some of its dollar bonds and 10 pence, while an office block in Canary Wharf is selling for 60 per cent less than it was sold for in 2017 after it was seized by lenders from a Chinese investor.

The sales are part of a rebound in disposals after some developers paused for breath in 2023 while working on restructuring plans.

Earlier in February, a luxury development in the heart of Mayfair, an upscale area in west London, collapsed into administration after defaulting on its loans. It is majority owned by two Chinese investment firms, Citic Capital and Cindat, and the homes will continue to be marketed to potential buyers through the administrators.

Farther east in the UK capital, a person with knowledge of the matter sees a housing project planned by distressed Chinese developer Country Garden Holdings drawing bids of less than £100 million.

A unit of Greenland Holdings, meanwhile, extended a loan for a skyscraper project in east London that technically defaulted in 2023, a filing shows.

Sales are picking up outside Europe too, including in Australia.

Only a few years ago, ambitious Chinese developers were major players in the local market. Now, most have largely stopped buying and have pivoted instead to offloading projects.

Notable recent disposals include the sale by Country Garden’s Risland unit of a site on the outskirts of Melbourne for A$250 million (S$219 million), according to local media. The company has also recently divested a Sydney development asset for about A$240 million, according to another local media report.

To be sure, China is by no means the only source of potential distress in the commercial real estate market.

South Korean investors timed a huge bet on offices badly, and higher interest rates have already caused German and Nordic landlords to sell off properties at large discounts.

A wave of loans maturing in the United States is also expected to lead to foreclosures by regional banks and sales of the underlying assets.

But China is the market where perhaps vendors have the most incentive to sell quickly. BLOOMBERG