Country Garden has made interest payments on two U.S. dollar bonds just as a grace period was due to end on Tuesday, a person close to the company said, in a relief for the embattled developer and crisis-hit Chinese property sector. China's largest private property developer failed to pay coupons on the bonds totalling $22.5 million due on Aug. 6, exacerbating fear of the developer's cash situation and keeping markets on tenterhooks throughout their 30-day grace periods.

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Though the amount was relatively modest, failure to pay would have undermined fragile hope in financial markets that China's steady drip feed of policy stimulus was starting to stabilise the struggling property market and wider economy.

It would also have raised the risk of default and demands by holders of other dollar bonds to accelerate payments, bondholders and lawyers said. Country Garden did not immediately respond to a request for comment. The person close to the company declined to be identified as they were not authorised to speak with media.

The developer's share price was down roughly 3% on Tuesday, reflecting little change after Reuters reported it had wired the payments. The Hang Seng Mainland Properties Index (.HSMPI) and China's CSI 300 Real Estate Index (.CSI000952) lost more than 2% each as some investors took profit from the previous sessions' gains.

Tuesday's development comes after Country Garden on Friday won approval from onshore creditors to extend a private bond worth 3.9 billion yuan ($536 million). Country Garden had not missed a debt payment obligation, onshore or offshore, until it failed to pay coupons on the two dollar bonds last month after slowing demand for new homes translated into tighter cash flow.

As well as the payments that were due on Tuesday, Country Garden has about $162 million of offshore bond interest payments due during the rest of the year, showed data from researcher CreditSights.

Country Garden's predicament highlights the fragile state of China's real estate sector, which accounts for roughly a quarter of the world's second-largest economy and whose situation has deteriorated since a government campaign against high leverage began in 2021.

Making matters worse is a lacklustre post-pandemic economic recovery. Services activity expanded at its slowest pace in eight months in August, a private-sector survey showed on Tuesday, as weak demand continued to dog the economy and stimulus measures failed to meaningfully revive consumption.

Latest stimulus included lowering existing mortgage rates and preferential loans for first-home purchases in big cities. "With domestic demand weak and house prices on the slide in smaller Chinese cities in particular, there are still worries about the fragility of the real estate sector," said Susannah Streeter, head of money and markets at Hargreaves Lansdown, U.K. "Stimulus efforts to increase mortgage lending are welcome but a much larger package of support is likely to be needed to restore more confidence in the sector, and put exposed property firms on a firmer footing."