CHINA’S investment trusts are pulling financing for the real estate industry as Kaisa Group Holdings Ltd.’s missed payments heighten default concerns.

    Issuance of property-related products, which channel money from wealthy individual investors, tumbled 62 percent from a year earlier to 38.5 billion yuan (US$6.2 billion) in the fourth quarter, data compiled by research firm Use Trust show. Builders must repay 241 billion yuan in trusts in 2015, up from 178 billion yuan last year.

    Shenzhen-based Kaisa, which missed a bond coupon payment this month, failed to repay a 2.5 billion yuan trust last week, people familiar with the matter said.

    “The record amount of trust products due is adding to the agony of property developers as they face a withering funding lifeline,” said Shuai Guorang, an analyst at Use Trust. “Investor demand for property trusts has declined as they are concerned about developers’ cash supply.”

    While the government’s relaxation of property curbs has helped underpin a rebound in home sales, investors are speculating more developers may be caught up in an anti-corruption drive.

    Kaisa, Agile Property Holdings Ltd. and Hydoo International Holding Ltd. have been linked to probes. Local authorities in Handan, Hebei Province, sent work teams into 13 developers after failure to repay funds.

    “A big portion of shadow bank funding, including trust financing, is borrowed by property developers,” said David Cui, China strategist at Bank of America Corp. “If there is a sharp rise of defaults by the developers, it may cause a shock to investor confidence in shadow banking, which will raise risks of a credit crunch.”

    The number of publicly traded real estate firms with debt exceeding equity has increased to 135 out of 336 from 57 in 2007.

    “Chinese companies’ leverage ratio is too high,” said Cui. “The probability of a credit crunch at some point is high.”

    Yields on Chinese speculative-grade debt denominated in dollars climbed to 12.39 percent Jan. 19, the highest since June 2012, a Bank of America Merrill Lynch index shows. The junk notes have lost 3.2 percent in 2015. The Shanghai Stock Exchange Property Index has dropped 6.1 percent in January, set to end a four-month rally.

    “We are bearish on the property industry,” said Cheng Peng, head of investments at Beijing-based Genial Flow Asset Management Co. “Many third or fourth-tier property developers may run into trouble this year.” (SD-Agencies)