China is heading towards another real estate crisis – but on a very different scale than it has seen before

China is heading towards another real estate crisis - but on a very different scale than it has seen before
Chinese real estate

Real estate projects under construction in the downtown area on July 9, 2007 in Chongqing Municipality, China.China Pictures/Getty Images

  • Country Garden, a massive Chinese real estate developer, defaulted on interest payments on dollar bonds this week.

  • “Any default will affect China’s housing market more than the collapse of Evergrande,” said one analyst.

  • Beijing has been cracking down on excessive debt and speculation in the real estate market since 2020.

Two years after Evergrande’s default wreaked havoc on global markets, China’s ailing real estate sector is teetering on the brink of another crisis.

On Tuesday, Country Garden, the nation’s largest private developer by sales, Interest payments were not made on two of the US dollar-denominated bonds.

The company has it now 30 day grace period to avoid official default.

Wednesday“Any default will hurt China’s housing market more than the collapse of Evergrande since Country Garden has four times as many projects,” Bloomberg Intelligence analyst Kristi Hong writes.

She added that the debt crisis in Country Garden would have a far-reaching impact on China’s housing market sentiment and could significantly erode buyer confidence in brimming private developers.

Developer built on 3000 housing projects all over china. This compares Evergrande has more than 700 projects all over China.

The size of the debt tells a different picture. Evergrande’s total liabilities 2.4 trillion yuan, or about $333 billion last year. It beats Country Garden’s debt, which was $200 billion at the end of last year. However, the scale of the Country Garden projects is a major warning signal for the Chinese real estate sector and the broader economy.

What is a country park?

The Hong Kong-listed Country Garden was one of the few major private developers for side step by default Since the liquidity crisis that hit the Chinese real estate sector in 2021.

While Country Garden was the best-selling developer in China last year, it has slipped to Fifth place in the first six months of 2023.

The company reported annual revenue of 430 billion yuan, or $60 billion, in 2022, down about 18% year-on-year, according to the report. Moody’s expects the developer’s revenue to fall to about $328 billion this year and about $271 billion next year, according to a report released Monday.

The developer employed about 70,000 people by the end of last year. According to its annual report for the year 2022. More than 60% of Country Garden’s local projects are located in Tier 3 and Tier 4 cities – which usually have smaller populations – and about 26% are located in Tier 2 cities, according to the report.

Country Garden was founded in 1992 by Farmer turned businessman Yang Guoqiang, via CNN. his daughter, Yang Huiyan, He assumed the position of Chairman of the Board earlier this year.

Shares of the Foshan-based company are down 20.4% since Monday. Investors are concerned about missed interest payments and the company decision to cancel Plan to inject about $300 million into the business through a stock offering.

The drop in the share price torpedoed the fortune of Chairman Yang, who was Once upon a time the richest woman in Asia. Yang’s net worth is now $5.5 billion, down 84% since June 2021. According to the Bloomberg Billionaires Index. Her fortune fell by nearly $490 million on Tuesday alone.

What is the debt problem in Country Garden?

country park confirmed to Reuters It missed interest payments of approx $22.5 million On bonds due in February 2026 and August 2030.

The company was approx $200 billion in liabilities At the end of 2022.

The state-owned media outlet It reported on Tuesday that Country Garden has experienced temporary liquidity pressures and is seeking funds to resolve a debt crisis, citing an unnamed source by the company, according to a CNN translation of the report.

Moody’s even downgraded Country Garden’s credit rating to B1 from Ba3 – which means the debt is It is considered a risky investment.

“The developer’s struggle to deal with modest coupon payments underscores the extent of the liquidity crunch it faces,” wrote Sandra Chow, co-head of Asia Pacific research at CreditSights. In The New York Times.

How are Country Garden and Evergrande problems different?

The two crises differ in that the number of Country Garden projects dwarfs the number of Evergrande projects, and the economy is now even. Worse than it was three years ago.

Evergrande was once the second largest developer in the country by sales. company It fueled its growth largely through borrowing At one point it became the largest holder of dollar debt among its peers.

Paying off this growing debt has become a daunting task. Evergrande faced a liquidity crunch in 2020, which prompted it Trying to halve its nearly $100 billion in debt by mid-2023.

These efforts have been thwarted by the slowdown in China’s real estate sector and the efforts of regulators to rein in real estate developers who are borrowing excessively. All these factors led to a Defaults in late 2021.

But things are different now.

Chinese economy in deep trouble After years of intermittent COVID-19 lockdowns. The country is trying to reverse years of crackdowns and boost its flagging economy b economic stimulus round It aims to increase consumption rather than stimulate supply.

However, the broader economic uncertainty hit a record high Youth unemployment rate, slowing economic growth Hopes of a revival could be dashed. Few people want to buy homes in this environment, and all of these factors exacerbate country garden problems.

Why is real estate so important in China?

real estate sector in China is too big who compensates for it 30% of its GDP, per report Spanish Caixa Bank Released January 2022.

The country’s real estate craze has been largely driven by debt – a double-edged sword, which allows the country’s property developers to take out huge loans to build pre-demand flats with an increased risk of default, Insider’s Huileng Tan reported on Monday.

Beijing has tried to moderate this debt-fueled growth for years. In 2020, China introduced the so-called The “three red lines” policy which attempted to regulate debt ratios for real estate developers to control debt burdens.

However, the borrowing rein began to send property sector in crisis. Evergrande defaulted on huge debtswhich later turned into a real estate crisis as other smaller developers took off default on their bonds.

Sector-specific defaults have also raised concerns about the spread of problems in the Chinese domestic market – and Even the global economy.

Country Garden did not respond to Insider’s request for comment.

Read the original article at Business interested

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