Home » Evergrande crisis expert: China’s real estate crazy era is over | Evergrande Real Estate | Debt Crisis | Chinese Economy

Evergrande crisis expert: China’s real estate crazy era is over | Evergrande Real Estate | Debt Crisis | Chinese Economy

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[Epoch Times October 14, 2021](Epoch Times reporter Luo Ya, Lin Yan interviewed and reported) Taiwanese financial celebrity Huang Shicong said that Evergrande represents China’s real estate issues, regardless of whether the future of real estate is soft or hard, China The era of crazy development in the real estate industry is over.

On Tuesday (October 12), the Chinese real estate giant Evergrande Group experienced another failure to repay its debt when it was due. The coupons of the three US dollar bonds issued by Evergrande totaling US$148 million expired on Monday (11th), and there is still no news of Evergrande’s interest payment.

This huge private company, which is deeply mired in the debt crisis, has missed its debt repayment deadline three times in a row in the past three weeks, further exacerbating the market’s worries about the spread of debt defaults in China’s real estate industry.

In addition, real estate companies such as Sony Holdings, Fantasia, and Modern Land are also experiencing problems with debt repayment on schedule.

“Hengda is actually projecting the problem of China’s real estate. Long-term excessive expansion has led to the accumulation of debt in the hands of mortgage lenders or banks.” Huang Shicong said in an interview with The Epoch Times. “This represents the prosperity and decline of China’s real estate industry, which will have a major impact on the Chinese economy.”

He said that after two decades of real estate rush, China’s real estate began to peak and then fell; bad debts of enterprises and banks were collectively reflected in this Evergrande incident; based on the fact that real estate occupies an important position in the domestic demand of the Chinese Communist Party’s economy, once real estate Falling prices will have a “very fatal blow” to China’s future economic growth.

“China (the CCP) has been preventing real estate chaos, and in recent years, the U.S. sanctions (against the CCP) and the economic slowdown in mainland China have put pressure on real estate. Conversely, the sharp decline in real estate will put pressure on the economy. . So, this is a structural problem that is difficult to change.” Huang Shicong said.

According to data from the US investment bank Goldman Sachs, China’s residential real estate market output value (including construction activities and services) in 2018 was equivalent to 23% of China’s GDP.

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The real estate industry is also a major employment channel in China. According to the National Bureau of Statistics of the Communist Party of China, in 2020, about 18% of China’s 285 million migrant workers are engaged in construction work, and many university graduates are engaged in real estate agency work. At the same time, about one-third of local fiscal revenue comes from land purchase activities by real estate developers.

House prices dropped sharply in September

Buyers have begun to anticipate falling prices and have left the market. According to a survey released by the Central Bank of the Communist Party of China, in the third quarter, the proportion of Chinese urban depositors expecting house prices to rise fell to 19.9%. This ratio is lower than the 25.1% in 2020 and the lowest level since the first quarter of 2016.

In the past, most investors (speculators) stopped investing in real estate under the expectation of loss; for those with rigid demand, the decline in house prices means more risk, and many of the real estate properties of Chinese developers are off-plan housing. Sales and buyers are afraid that the off-plan property they bought may become unfinished.

In recent days, many large Chinese real estate developers have announced that their sales in September have shown a decline, and even many developers’ sales have fallen by more than 20% or 30% year-on-year. The past September is usually one of the hottest months for sales.

The Wall Street Journal reported on Wednesday that if sales continue to fall sharply, serious economic consequences may be caused; the effects of slowing sales in the real estate industry may spread to the investment and construction sectors, which may damage growth, employment and local government finances.

Cheng Wee Tan, a senior equity analyst at Morningstar, said that the slowdown in sales was partly due to the government’s tightening of mortgage policies and weakening of home buyers’ confidence. He said that clients were worried that the developer’s project could not be completed, and media reports on China’s Evergrande unfinished construction project exacerbated these concerns.

Three red lines have long crushed real estate developers

In August 2020, the CCP set a “three red lines” for real estate companies to limit the bank loan quotas for real estate companies. The three provisions are: 1. The debt-to-asset ratio (ie debt divided by assets) other than advance receipts shall not be higher than 70%; 2. The net debt ratio of real estate enterprises shall not be greater than 100%; 3. The cash shortage of real estate enterprises The debt ratio (that is, cash divided by short-term debt) shall not be less than 1 time.

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Huang Shicong said that Beijing’s previous “three red lines” policy wanted to eliminate the bubble in the real estate industry, which has brought significant downward pressure on Chinese real estate developers, especially some large real estate companies, and directly suppressed the past expansion policies of real estate.

“They (real estate developers) used to rely on rapid expansion-to buy land quickly, quickly obtain land-use qualifications, and quickly sell them to consumers after they are quickly built. Therefore, they must have a large amount of reserve land and working capital in hand. When the expansion rate slows down, it will affect the financial structure of real estate companies.” He said.

Feng Chongyi, an associate professor at the University of Technology Sydney in Australia and an expert on China issues, also told The Epoch Times, “The three red lines are that (the CCP) has no money, and it is worried about the collapse of the entire financial system. It must give priority to protecting the National Bank. Even if it is willing to protect (real estate), there is no Ability to protect”.

Whether hard or soft, the crazy era of China’s real estate industry is over

Huang Shicong said that the good situation is that China’s real estate industry will slowly squeeze out the bubble and slowly land. The impact will be very long and will cause relatively little damage to the mainland’s economy, but it will drag down the medium and long-term development of the mainland’s economy; if it is rapid Bursting the bubble is a tragedy for China, but it can get a short-term adjustment opportunity, and then move up quickly.

“No matter which version it is, because real estate drives the economic boom, the era when the Chinese mainland’s economy has to run like the past has also come to an end.” He said.

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He predicts that in the short term, at least in two to three years, China’s real estate will inevitably face an amendment. It is necessary to study China’s policy challenges in detail before we can know the follow-up development.

He said that the slowdown in the expansion of construction companies and the impact of China’s economic recession or economic slowdown on buyers of homes will put double pressure on the entire real estate industry, and real estate may remain bearish for a long time in the future.

Is Evergrande likely to become the second Lehman

When asked whether Evergrande has spread risks overseas like Lehman Brothers in the United States, Huang Shicong said that Evergrande itself has little impact on the global economy.

“For China, Evergrande’s own factors have little impact on the global economy, but the relatively large impact on the world is the overall bubble in the Chinese real estate industry. If the overall real estate industry in China declines, according to the previous Pan Shiyi ( According to the chairman of “SOHO China”, a leading real estate company in Beijing, the total market value of China’s real estate is about 60 trillion US dollars. If calculated according to the past world real estate correction rate of 20%, this will have a considerable impact on the Chinese economy.” He said .

“If China’s economy is affected by this, it will lead to a slowdown in overall demand, which will have an impact on raw materials and the global consumer market. So I think the economic recession caused by the decline in China’s real estate will affect the world, which will have a conductivity.”

Huang Shicong predicts that China’s economic growth in the future may be dragged down by real estate and continue to decline.

Fitch Ratings lowered its forecast for China’s economic growth in the next two years in September, citing the slowdown in real estate activity that will “have an impact on domestic demand.” Fitch lowered China’s gross domestic product (GDP) growth forecast in 2021 from 8.4% to 8.1%, and its GDP growth forecast in 2022 from 5.5% to 5.2%.

Editor in charge: Ye Ziwei#

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