CHINESE REAL ESTATE DEBACLE: Zhenro Defaults for First Time After Missing Bond Payments.

Zhenro Properties Group Ltd. defaulted for the first time after the debt-laden Chinese developer said it was unable to pay interest on two dollar bonds before a grace period ended Saturday.

The builder, which in February asked holders of about $1 billion of bonds set to mature this year for more time to repay, said in a Hong Kong stock exchange filing Sunday it didn’t pay a combined $20.4 million of interest on two dollar bonds. That has resulted in events of default, according to the company.

Zhenro also said it might not be able to pay a combined $32.6 million of interest due on three other dollar bonds before grace periods end between April 10 and May 14. Failure to meet the obligations would also constitute events of default, the company said. However, the firm said it intends to pay the due interest on all five notes by May 31.

The missed payments are a reminder of the fragility of the Chinese property sector, which is grappling with a cash crunch and sales slump following a government crackdown on excessive leverage. Shares of Chinese developers fell on Monday morning, curtailing a three-week rally that was fueled by optimism policy makers may be preparing steps to support the industry.

Related: China Shadow Banks Snap Up Property to Rescue Own Investments.

China’s shadow banks are emerging as unlikely white knights for embattled property firms by becoming mini-developers themselves.

Trust companies including MinMetals Trust Co. and Zhongrong Trust Co. have bought stakes in at least 10 real estate projects this year, betting that the unfinished homes will eventually yield cash to pay off some of the $280 billion in property-backed funds sold by trusts to investors.

The push by these lenders to get into the real estate business offers some relief for investors and developers in the wake of China’s property collapse that has rattled global markets and led to more than a dozen defaults. The moves free up cash to help real estate firms tackle some of their $3.4 trillion in liabilities.

The shadow banks are doing these deals now, knowing creditors may have limited room to negotiate payments or deals with developers like China Evergrande Group once restructuring plans are announced, according to one trust executive.

“Taking up property projects during an enduring downturn is more about saving themselves,” said Zhu Yiming, a property analyst at China Real Estate Information Corp., referring to the trusts. Rather than await credit improvement, “it’s better for trusts to regain the initiative through getting a controlling stake.”

More: What Doomed China’s Much-Anticipated Property Market Reform Plan?

In Xi’s eyes, the real estate market is the epitome of China’s unsustainable growth model. It supports nearly 25 percent of China’s GDP, a rate higher than both Spain and Ireland before the Eurozone crisis. Since the housing market reform in the late 1990s, Chinese housing prices have grown so fast that a typical apartment in Beijing now costs 25 times the annual wage. Thus, high housing prices add a tremendous burden on Chinese people and suppress their consumption and innovation power.

In addition, the collapse of Evergrande Group, one of China’s biggest real estate developers, showed that the real estate sector might become a ticking time bomb for the Chinese economy. As a result, Xi has made reforming the real estate sector his primary target for the Common Prosperity campaign, declaring that “houses are for living, not for speculation.”

Related flashback to November of 2019: How to Conduct Business with Chinese Companies That See a Dark Future.