It’s a bad week for Evergrande: on Monday, the company’s shares were suspended from trading on the Hong Kong Stock Exchange. The next day it was announced that Evergrande would not be able to present its annual accounts by the end of the month. The same applies to Evergrande New Energy Vehicle Group and Evergrande Property Service. Now Evergrande has literally “discovered” that banks have confiscated collateral worth 13.4 billion yuan ($1.9 billion).
Other real estate developers are also having problems. China’s third-biggest real estate group Sunac is trying to extend a 4 billion yuan ($600 million) bond issue that would mature on April 1 by two years. Soho China, meanwhile, is offering 32,000 square meters of commercial and residential space in Shanghai and Beijing at a discount of 30%. The money would be needed to restructure debt, according to Soho China.
Evergrande and falling real estate prices in China
In the first two months of 2022, according to the National Bureau of Statistics of China (NBC) 22.1% fewer apartments sold than a year earlier. The size of the apartments sold has also decreased. 134.6 million square meters were sold, 13.8% less than the previous year. Prices fell only slightly by 0.1% compared to the previous month.
The numerous support measures on the part of the local governments do not seem to help much. Many cities in China are trying to make home buying easier, for example by allowing homeowners who have paid off their mortgage on their first apartment in full to get a mortgage on another purchase on the same terms as before. So far, the conditions for a mortgage for a second purchase have been significantly worse.
As a result of falling demand for apartments, local government land sales also fell by 42.3%. Since land sales are the main source of income for the cities, but at the same time they have to invest more to stimulate economic growth, the debt grows.
The real estate crisis hits two of the most important social groups in China. In addition to the middle class, there are also the middle and upper civil servants, who have low incomes but own many assets, primarily real estate. Both depend on increasing the value of their property to maintain their lifestyles and provide for old age.
Therefore, the turbulence around Evergrande is a bad omen for further economic development in China and consumption in the Middle Kingdom!
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