The Burst of China’s Real Estate Bubble: Vanke Chairman Describes the Painful ‘Hitting the Wall’ Period

On October 9, 2023, the Vanke residential building is under construction in Nanjing, Jiangsu Province. (STR/AFP)

[The Epoch Times, October 28, 2023](Reported by He Jiaxing, reporter of the Epoch Times Special Topics Department) Yu Liang, chairman of the board of directors of Vanke, recently admitted that China’s real estate industry has now entered the most painful marathon “hitting the wall period”, and the pain is longer than expected. , more pain. As a microcosm of the mixed real estate and private enterprises that are still alive in China, Yu Liang’s words show that there is no cure for the burst real estate bubble.

Yu Liang’s words about the “hitting wall period” were said at Vanke’s annual media exchange meeting on October 20.

The “hitting wall period” of marathon running refers to a difficult period that athletes must go through during the race. Usually after running about 30 kilometers, the sugar that converts energy into energy is basically used up in the body, and fat begins to be burned into energy. During this period of competition, the athletes’ physical energy is severely exhausted, their muscles are sore, and their bodies are pushed to the limit, as if they were “hitting a wall.”

Yu Liang, 58, said: “The conversion of burning fat is relatively slow and takes 5 to 10 minutes. This period of time is the most painful because there is not enough sugar and the fat has not yet risen. Once you get through it, you can continue running.”

He used the phenomenon of marathon “hitting the wall” to vividly describe the painful state of struggle faced by the real estate industry this year when it “cannot run”.

Vanke has always been a benchmark in the real estate industry and a benchmark for real estate companies. In 2016, Yu Liang succeeded Wang Shi, founder of Vanke. In 2018, when real estate companies such as Evergrande and Country Garden were still making rapid progress, Yu Liang shocked the entire industry by shouting the slogan “survive”. In his speech at the internal annual meeting in 2022, Yu Liang warned: Real estate has entered the “dark iron age” and this year is a year of desperate battles. Either die or live, there is no in between. That year, Vanke laid off employees and cut salaries, cut costs and cut costs. In 2023, a number of famous companies such as Sunshine City, Evergrande, Sunac, and Country Garden collapsed again. Vanke is one of the few remaining large listed real estate companies.

Many people in the industry believe that Vanke has a state-owned enterprise background, and its largest shareholder is Shenzhen Metro. Most of the land acquired by Vanke is in first- and second-tier cities, while Evergrande, He Country Garden and others mostly build houses in third-, fourth- and fifth-tier cities. During the economic downturn, housing sales in third-, fourth- and fifth-tier cities were far inferior to those in first- and second-tier cities.

Vanke is still one of the top real estate companies in China and is classified as “stable” in the ratings of listed companies. However, this year’s waterloo for China’s economy and real estate industry has exceeded many people’s expectations. Vanke is also living a “very painful” life. In the first half of this year, Vanke’s revenue fell by 2.9% year-on-year, and its gross profit margin also dropped to 18.87% from 20.46% last year.

Vanke said in September that the decline in gross profit margins is a common problem faced by the industry. Vanke’s short-term sales gross profit margins are under greater pressure than before. As the buildings are completed and delivered, these pressures will be reflected in settlement results this year and next.

Yu Liang believes that the market has fallen too far.

Since August this year, relevant departments and various localities have introduced some policies to stimulate home buying and support the real estate industry in launching some new measures including lowering the threshold for home purchase. However, the results have been limited and have failed to change the sluggishness of the entire real estate market and the decline in housing prices. and market pessimism.

According to statistics from China Real Estate News, in the first half of this year, the profitability of the top 50 listed real estate companies continued to deteriorate, with a total net profit loss of 96.478 billion yuan (about 13.2 billion U.S. dollars), and a payment of 80.9 billion yuan (about 11.1 billion U.S. dollars). financial costs. Most real estate companies have high debts, reduced capital flows, and severe debt repayment pressure. Among them, 9 real estate companies have delisted, and 16 listed real estate companies are still suspended. Among the remaining 25 active real estate companies, 6 listed real estate companies have more than 100 billion yuan (about 13.88 billion U.S. dollars) in cash and are regarded as “stable” real estate companies. Except for Country Garden, Poly , China Resources, Vanke, China Shipping and China Merchants Shekou all have central and state-owned enterprise backgrounds.

No one expected that after August, it was reported that Country Garden could not even pay the due interest of more than 20 million US dollars.

In the sales performance list of Chinese real estate companies from January to September, the sales of the top 100 real estate companies shrank year-on-year.29.5%. Real estate companies that have suffered significant losses are not just private companies, but also many central and state-owned enterprises. Among them, those with losses exceeding 10 billion yuan include Country Garden, Evergrande, Sunac, Sino-Ocean and Shimao Group. Country Garden ranked first in operating losses, and its sales performance dropped from first to sixth place among the 100 real estate companies last year.

Vanke’s sales performance this year ranks second, second only to Poly Group, the largest state-owned enterprise. Although Vanke said that its U.S. dollar debt has been reduced and its liquidity is sufficient to pay debts due in the short term, Vanke’s life, like the entire real estate industry, has also fallen into a painful “hitting the wall” period.

Ever since Xu Jiayin of Evergrande was arrested, the real estate market began a new wave of decline, and then Country Garden officially exploded, real estate sales were in ice and snow, the industry was filled with pessimism and despair, and both the real estate market and the stock market were killed.

According to data from the National Bureau of Statistics of the Communist Party of China, the total output value of the real estate industry shrank by 2.7% in the third quarter of this year, the largest quarterly decline this year.

The real estate industry accounts for as much as a quarter of China’s GDP. The continuous explosion of real estate companies has formed a powerful shock wave, radiating to all parts of the country and its upstream and downstream enterprises, banks and other financial institutions, dragging down the rebound of the Chinese economy.

Due to the expected impact of real estate on the Chinese economy, the International Monetary Fund this month lowered its forecast for China’s economic growth in 2024 to 4.2%.

S&P Global Ratings estimates that under the downside scenario, China’s real estate sales in 2024 will fall by up to 25% compared with 2022, which will reduce China’s real GDP growth to 2.9% that year.

The ‘antidote’ to the real estate crisis has failed

Pan Gongsheng, Governor of the Central Bank of China, recently stated that he would steadily resolve the bond default risks of large real estate companies, increase financial support for guaranteed housing properties, and support the reasonable financing needs of real estate companies without discrimination.

Pan Gongsheng’s speech did not go beyond the previous tone, and there were no effective specific measures. The Chinese people have become accustomed to the CCP’s official promises.

From November 2022, the Communist Party of China introduced the “16 Financial Articles” and the “Three Arrows” for real estate financing, and the financing policy has also been loosened. The real estate policy has become more and more relaxed, such as approving a house but not a loan, reducing the interest rate of existing mortgages, and reducing the down payment of mortgages. Proportions, relaxation of purchase restrictions, etc. After September, various localities launched the “replacement of old with new” policy. There were many tricks, which stimulated purchases to a certain extent.

However, more than 70% of private real estate companies have collapsed, and it is difficult to obtain financing support from banks. At present, the sales situation in the property market has not improved, and the risk of thunderstorms has spread to state-owned and centrally-owned developers. Upstream and downstream companies in the real estate industry have been dragged down by the real estate Waterloo. Investors are no longer bullish on real estate.

In October this year, against the background of falling house prices, homeowners could not see the future direction of house prices. Taking advantage of the new housing market policies, they were chasing after each other to sell their houses at lower prices. There have been waves of house selling in various parts of China.

In Nanjing, a first-tier developed city, second-hand housing prices fell by 0.9% month-on-month and 4.0% year-on-year in September this year. Since October, the number of second-hand housing listings in Nanjing has exceeded 184,000 units. The same goes for newly built commercial housing. By October, the price of new housing in Nanjing had fallen for the fifth consecutive month.

Commercial housing sales in second- and third-tier cities are also conducted at reduced prices.

In the past two months, price wars and promotion wars have been fierce, but more and more real estate companies have begun to worry about low-price sales, which may eventually lead to insolvency.

In early October, Huiyang Poly Sunshine City sold houses at a 50% discount, triggering a rights protection campaign by the old owners, but the sale was stopped. Similar things happened elsewhere.

At present, various policies implemented by the Chinese Communist Party authorities to stimulate housing consumption have failed to boost the housing market economy. The real estate industry no longer has confidence in policy bailouts.

The real estate bubble bursts and there is no cure

As early as two years ago, Ren Zeping, a Chinese economist and chief economist of Zhongyuan Bank, said that real estate is the mother of cycles, and nine real estate crises occur out of ten. Many major economic crises around the world are related to the bursting of real estate bubbles.

Current political commentator Tang Jingyuan told The Epoch Times on October 26 that China’s real estate bubble has now burst and there is no cure. He said, “Many well-known real estate companies, such as Evergrande, Country Garden, Sunac, etc., have been hit hard, and any policies introduced are of no use. No matter how much the CCP tries to stimulate home buying, people are still unwilling to buy because they have no confidence in the economy. Unemployment rate With such a high price, it is difficult to make money. New houses cannot be sold, and more and more developers will have no income and will not be able to continue their business.”

Tang Jingyuan also believes that China’s real estate industry will shrink sharply in the future. China’s economy is now facing a situation full of holes, and the CCP is just using excessive currency issuance to delay the outbreak of the crisis. It cannot last long.

Editor in charge: Lian Shuhua#

2023-10-27 22:52:42
#Vanke #entered #hitting #wall #period #Chinas #real #estate #bubble #burst #Epoch #Times