Huge HK Fire Adds to a Bad Day For China's Property Sector

It’s been a bad day for the Chinese property market, in two very different ways.

First, and most obviously, was the fire at the Wang Fuk Court housing estate in Hong Kong, where scaffolding was ablaze on multiple highrise blocks. At least five people, including a firefighter, are reported to have died and an unknown number were trapped at the time of writing.

Firefighters battled the blaze as dusk fell, while thick black smoke billowed from the 31-storey towers and orange flames lit up the night sky.

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The Wang Fuk Court complex is home to 2,000 residential apartments. The Fire Services Department told Reuters it did not know how people may still be inside.

One resident, surnamed Wong, 71, broke down in tears, saying his wife was trapped in one of the buildings.

Three people were in critical condition, having suffered burns, and one in a serious condition, officials said, while some firefighters had also been injured.

People gathered on a nearby overhead walkway, watching in dismay as smoke billowed from the buildings, some of which were clad in bamboo scaffolding, with local media saying the units were being renovated.

Frames of scaffolding were seen tumbling to the ground as firefighters battled the blaze, while scores of fire engines and ambulances lined the road below the complex, according to Reuters witnesses.

Wang Fuk Court is one of many high-rise housing complexes in Hong Kong, which is one of the most densely populated areas in the world. Tai Po, located near the border with mainland China, is an established suburban district with a population of about 300,000.

The complex is under the government’s subsidised home ownership scheme. It has been occupied since 1983, according to property agency websites.

Hong Kong is one of the last places in the world where bamboo is still widely used for scaffolding in construction.

The government moved to start phasing out the city’s use of its bamboo scaffolding in March, citing safety. It said that 50% of public construction works would be required to use metal frames instead.

The fire department said it received reports at 2:51pm (0651 GMT) that a fire had broken out in Wang Fuk Court. It was upgraded to a No. 5 alarm, the highest, at 6:22pm.

Vanke bonds plunge

The second item of bad news related to China’s long-running property sector crisis, which continues to deteriorate.

Bonds issued by state-backed property developer Vanke plunged on Wednesday, reigniting market concerns about the extent of potential central government support for the crisis-hit sector.

Several of Vanke’s yuan bonds fell more than 20% in early trade, leading to trading suspensions on the company’s five exchange-traded bonds, the Shenzhen Stock Exchange said.

Deflationary pressures have persisted in China since the Covid-19 pandemic, weighing on consumer and business confidence. These pressures have become entrenched, most notably in housing.

New home prices fell at the fastest monthly pace in a year in October, highlighting persistently weak demand.

Vanke, one of China’s best-known names and one-third owned by Shenzhen Metro Group, faces renewed market scrutiny.

Markets are replaying a pattern from earlier this year, said Yao Yu, founder of Shenzhen-based credit research firm RatingDog. He said markets had priced for Vanke not to be able to meet debt repayment obligations, sparking a steep sell-off before rebounding on signs of state support.

“Now, market rumours suggest Shenzhen has sought help from Beijing, leaving two scenarios — no rescue or central backing,” Yao said.

Vanke’s yuan bond due in March 2027 was traded at 60 per 100 par value as of midday, down from 80 at the open, a nearly 30% drop.

The bond traded around 40 at the end of last year before a sharp rebound early this year on optimism over potential state support.

Earlier this month, Vanke said Shenzhen Metro agreed to provide loans of up to 22 billion yuan ($3.09 billion), a stock exchange filing showed.

While authorities rolled out a series of key measures in the second half of 2024 to support the market, large-scale new stimulus has been withheld this year. Recent policy steps have mainly reaffirmed existing commitments.

Vanke shares listed in Hong Kong fell nearly 3%, while its onshore shares slipped to their lowest since 2008.