At its peak, Evergrande was the second largest real estate developer in China. (Photo: AFP/Getty Images)

(CNN) -- The Evergrande Group has just defaulted on another bond, casting further doubt on the future of the embattled property developer at the epicenter of China's real estate crisis.

Hengda Real Estate, Evergrande's flagship unit in mainland China, defaulted on Monday on a 4 billion yuan ($000 million) onshore bond and interest, the company said in a statement to the Shenzhen Stock Exchange.

Evergrande, which had total liabilities of $328 billion at the end of June, defaulted on its debt for the first time in 000, triggering a crisis that continues to weigh on China's vast real estate sector.

News that it had defaulted on another payment unnerved investors, who were already worried about the real estate giant's fate after it warned on Sunday that attempts to restructure its debt were in jeopardy due to a regulatory investigation into Hengda.

This warning, which came on the heels of the revelation of another criminal investigation into its shadow banking unit, raised questions about whether the real estate giant could complete the multibillion-dollar restructuring of its debt, which is being closely watched by investors around the world.

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At its peak, Evergrande was the second largest real estate developer in China. (Photo: AFP/Getty Images)

Evergrande shares closed down 7% on Tuesday after Monday's 22% plunge. Other developers fell across the board: Sunac China sank more than 6% and Country Garden fell 4.2%.

Hong Kong's benchmark Hang Seng Index was down 1.5%, closing at its lowest level in 10 months.

If the restructuring fails and Evergrande is unable to reach a new agreement with its foreign creditors, it could face liquidation, in which its assets would be sold and operations ceased.

A disorderly collapse of the company, which was China's second-largest property developer, would further hurt the broader economy, which has relied on the property market for decades.

The Chinese real estate sector once accounted for 30% of the country's Gross Domestic Product.

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"Investors will be keeping a close eye on the Chinese property market to see if it can stabilize soon and its implications for global commodity demand and prices," Tao Wang, chief China economist and head of the Asian economy at UBS, told CNN.

Wang said Chinese property developers' dollar bonds have been trading at "very difficult" levels, given the defaults of many developers and the sector's continuing recession.

Doubts about financial stability

According to Stephen Innes, managing partner of SPI Asset Management, Evergrande's financial crisis has reignited concerns about China's economic stability.

"It has reignited concerns that the country's real estate sector will continue to deteriorate rather than show signs of improving, and that risks to financial stability will increase," he said.

Cracks are already beginning to appear.

Zhongrong Trust, which had invested more than $9 billion in real estate for wealthy corporate and private clients by the end of 000, stopped paying its investors last month, sparking rare protests.

The incident underscores how China's prolonged property recession may be splashing its trillion-dollar financial sector.

In addition, there is a growing sense of unease about whether Chinese authorities are taking sufficient steps to support the overall economy, Innes said.

The government's priorities have shifted from pursuing only economic growth to achieving technological self-sufficiency and maintaining financial stability, he added.

"This evolution of priorities presents the Chinese authorities with a more complex and delicate balance," he said.

On Sunday, Evergrande surprised investors with the announcement that it could not issue new IOUs due to the investigation into Hengda.

China's stock market regulator last month launched an investigation into the subsidiary's alleged breaches of investor disclosure requirements, the company said.

Sunday's announcement came just days after Evergrande canceled key meetings with creditors to restructure its offshore debt, citing disappointing property sales in recent months.

Just over a week ago, Chinese police detained some of the staff at Evergrande's wealth management unit after it failed to reimburse investors. It was the first criminal investigation launched against Evergrande since it was hit by the debt crisis nearly two years ago.

--Mengchen Zhang and Marc Stewart contributed information.

ChinaReal Estate CrisisEvergrande