Wednesday, October 27, 2021

China’s real estate bubble is in free fall

A year ago, as China’s economic growth cooled, Hui Ka Yan, founder and chairman of Evergrande Real Estate Group Ltd., the country’s biggest property developer, was seen as one of the relatively bright stars in a darkening global economy.

But recently, Hui, who was regarded in his field as a leader of China’s next generation of tycoons, has landed on some rough ground. This week the company said it might consider canceling its public listing, amid concerns about a possible financial crisis in the country. On Wednesday, Evergrande’s shares were trading around 33 cents, a drop of more than 40 percent from their April peak, Bloomberg reports.

Evergrande’s troubles are not unique. UBS said in an August 6 report that Hong Kong-listed property firms had “clear near-term risks of a hard landing,” with more than half reporting inventory issues. None of the companies listed on the Chinese mainland, however, had any similar inventory woes, UBS said.

Still, Evergrande isn’t the only Chinese developer facing troubles. Stock markets in Canada and Hong Kong, where speculation has swept in on Chinese property deals, saw sharp swings this month, pushing the Shanghai composite down 17 percent for August, the worst month since 2016. Amid volatile markets, no one was willing to lend Evergrande money, Bloomberg reports.

The 667-acre golf course seen below in Jiaxing. —FRANCK RICHMOND/AFP/Getty Images

The dimming days of Hui, who founded Evergrande in 1999, are a troubling sign for companies like Evergrande that have managed to grow even as the world was wondering what will happen in China when President Xi Jinping consolidated his power and put the “great rejuvenation of the Chinese nation” on an accelerated path.

Evergrande has a market value of about $45 billion, making it China’s third-largest property company, behind Country Garden Holdings Co. and Greenland Holdings Group. It has seen China’s once-booming economy become more sluggish over the past year, with property prices and approvals for real estate projects in urban areas continuing to contract.

The Beijing-based company began showing signs of trouble in June when it disclosed that its accounts for the first half of 2018 would be all but wiped out after having to revalue the value of its land holdings after weakening prices and oversupply in some areas prompted it to slow its land purchases. When the company made its first-half earnings announcement on Aug. 7, it warned that its business prospects remained uncertain because of slumping domestic property prices.

Without a viable solution to its own problems, Hui and his team may be forced to look for outside investors. In December, Reuters reported that Evergrande was talking to banks and private equity groups for financing and selling real estate properties to raise cash.

Evergrande did not immediately respond to a request for comment, but it has publicly addressed the company’s woes.

“Evergrande is not doomed,” Hui told analysts in May, according to Bloomberg. “It’s still an attractive company.”

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