(Bloomberg) — China’s crackdown on the housing sector, which triggered a default at China Evergrande Group and led to a plunge in sales, is also calling into question the way freewheeling property developers have financed, built and marketed homes to the masses.
What once seemed unthinkable now appears possible: the heady days of selling homes in China before they’re built might be threatened. A ban could wipe out as many as half of small builders, according to Zhang Dawei, an analyst at Centaline Group. Private equity firms meanwhile are cooling on the nation’s property sector, while Citigroup Inc. analysts warned of risks ahead for the sector.
Developer stocks opened lower in Hong Kong Monday. Shimao Group Holdings Ltd.’s bonds dropped as much as 10 cents on the dollar, signaling rising investor anxiety over the company’s ability to service its debts.
Key Developments:
- What’s Next for China Evergrande, Crushed by Debt: QuickTake
- Evergrande’s Hui Forced to Sell Part of Stake in Defaulted Firm
- Hard Landing in Property Market Would Crater China’s Economy
- China Tries to Manage Global Message on Evergrande Collapse
- Sunac’s Active Funding Exercise May Boost Bonds: Credit Outlook
Evergrande Default Calm Masks 2022 Risks: What to Watch (9:10 a.m. HK)
The equanimity in financial markets that greeted the defaults of Evergrande and Kaisa may suggest the crisis in China’s property market is over. Far from it.
While Beijing’s shift toward pro-growth policies helped trigger outsized gains in Chinese high-yield dollar bonds, stocks and the yuan last week, there are plenty of risks ahead as policy makers seek to deflate a real estate bubble without crashing the economy.
China’s property developers remain under pressure from slowing sales and a wall of bond maturities coming due in January, according to Citigroup Inc. analysts. That means credit stress has yet to reach a maximum and weaker firms are likely to default, the analysts said.
Private Equity Firms Plan Cuts Over Property Woes (8:20 a.m. HK)
Private equity investors are cooling on China, pulling back from real estate amid mounting troubles at some of the nation’s biggest developers and with many also planning to cut bets on start-ups.
Among international investors a third will reduce their exposure to Chinese real estate funds over the next three years with none planning an increase, according to a survey by alternative asset manager Coller Capital. When including buyouts, venture, infrastructure, and private credit, there was an even split between increasing or cutting investments in China, Coller said after surveying more than 100 investors.
Abandoned Projects Shatter Confidence in Housing Market (8:15 a.m. HK)
Construction cranes stand idle in China’s Yunnan Province, on the easternmost edge of the Himalayas. Building has ground to a halt on Hainan, off the coast of Vietnam, and up in Heilongjiang, along the Russian border.
Across China, tens of millions of square feet of unfinished apartment buildings — the legacy of a real estate boom gone awry in 2021 — are derailing countless dreams of owning a home.
In a country where private homeownership was only legalized two decades ago, ordinary Chinese are discovering how quickly fortunes can turn in the housing market. Creeping price declines and plummeting sales in recent months have called into question the way freewheeling property developers have financed homes.
Hard Landing in Property Would Crater China’s Economy: BI (8 a.m. HK)
In 2021, tremors in China’s property sector — with Evergrande at the epicenter — rattled markets. In 2022, the risk is those were a precursor to a massive quake. Bloomberg Intelligence’s base case is the government will manage to deflate the bubble at a controlled pace – dragging on the economy. But they don’t rule out a hard landing in the property sector. Given it accounts directly and indirectly for around 20% of GDP, this would pose a serious threat to growth and the financial system
China Shifts Focus to Economic Stability as Growth Weakens (7:45 a.m. HK)
China stressed it will aim to keep the economy expanding in a stable manner next year as it looks to counteract the effects of a housing market slump and slower growth.
“Ensuring stability is the top priority for next year’s economic work,” the Communist Party’s top decision makers said at the end of a three-day annual Central Economic Work Conference. The government will “support commercial housing markets to meet residents’ reasonable needs,” according to a report of the meeting on the official wire service Xinhua Friday.
The most important word for economic policy in 2022 is “stability,” Han Wenxiu, a senior economic official of the Communist Party, said Saturday.
Hui Forced to Sell Part of Stake (7:15 a.m. HK)
Hui Ka Yan was once China’s second-richest person, worth $42 billion at his peak in 2017.
Now, the Evergrande founder and chairman is scrambling to keep his embattled property developer afloat, including by tapping his own fortune. That took a blow last week, after he was forced to sell pledged shares in his company.
Hui sold 277.8 million shares, reducing his stake to 59.78% from 61.88%, filings to the Hong Kong stock exchange showed Friday. No transaction value was given, but the shares were worth HK$498 million ($64 million), based on the average price when they were sold this week, according to Bloomberg calculations.
China to Favor Bond Sales for Property, Report Says (7 a.m. HK)
China is set to make it easier to issue bonds for acquisitions in the property sector, a move that may help cash-strapped developers sell assets.
Regulators will favor the issuance of notes to finance property-related deals, the state-run Securities Times reported, citing a meeting on Friday between the National Association of Financial Market Institutional Investors and developers.
The move comes as some developers struggle to sell assets to raise cash and service mounting debts amid a crackdown on leverage in the industry. With the real estate market slumping, regulators have shown signs of easing in recent weeks, prompting stronger real estate firms to tap the onshore interbank bond market for financing.
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