Name : Zaiena Naeem (GR)
Roll no : F20-BBA-5075
Financial Accounting
Submitted to : Dr. Umer Iqbal
BBA 3rd Semester
Evening Section A
University of Okara
30 November,2021
REAL ESTATE CRISIS IN CHINA 2021
The chinese economic slowdown in the third quarter of the current financial year unveils
the problem of the growing debt in the real estate industry in the country with millions of
houses unsold and unoccupied. The chinese government has suddenly woken up to a
revelation that the slowdown in the economy is not just because of the unsettling power
shortages and sippinh disruptions,but also the real estate debt that has mounted to USD 5
trillion , according th The Hong Kong Post.
Chinese Real Estate Companies which face Financial Crisis
1. KAISA REAL ESTATE
Chinese developer group Kaisa Group Holdings is in need of assistance to be able to pay
its investors, workers and suppliers, the firm told a meeting of Chinese government thinktank, banks and property firms, according to a source with direct knowledge of the matter.
The troubles of China Evergrande Group, the world's most indebted developer, have
reverberated throughout China's real estate sector, sparking offshore defaults, credit
rating downgrades and sell-offs in some developers' shares and bonds in recent weeks.
Underscoring Kaisa's troubles, the company said separately it was trying to solve its
liquidity problems, was consulting investors in wealth management products about better
payment solutions and pleaded for more breathing space. "We sincerely ask investors to
give Kaisa Group more time and patience," it said in a statement on its official WeChat
account late on Monday. Earlier on Monday, Kaisa attended a meeting with the
Development Research Center of the State Council, other developers and lenders in the
southern Chinese city of Shenzhen, the source said. The think-tank makes policy
proposals on China's national development and its economy, but is not a decision-making
body. At the meeting, Shenzhen-based Kaisa urged state companies to help private firms
improve liquidity through project acquisitions and strategic purchases, the source added.
Participants at the meeting included China Vanke, Ping An Bank, China Citic Bank ,
China Construction Bank, CR Trust, Southern Asset Management and developer
Excellence Group, according to the source. Kaisa, China's 25th largest developer by sales,
told those at the meeting it is facing significant difficulties amid rating downgrades and
banks curbing loans, the source said. The developer said some financial institutions had
transferred funds from its accounts inappropriately and it urged all lawsuits seeking a
freeze of its assets to be handled centrally in a Shenzhen court, the source added.
Kaisa, Vanke and Citic Bank declined to comment. Excellence and the other banks that
participated in the meeting did not immediately respond to requests for comment. The
State Council Information Office also did not respond to a request for comment. The
source declined to be identified due to the sensitivity of the matter. China's property sector
troubles have kept global markets on tenterhooks and led to a string of Beijing officials
speaking out in a bid to reassure investors the crisis will not spiral out of control.
Underscoring global concern on the situation, the United States Federal Reserve (Fed)
said on Monday in its latest report on financial stability that stresses in China's real estate
sector, caused in part by regulatory focus on leveraged institutions, as well as a sharp
tightening of global financial conditions could pose some risks to the U.S. financial
system.
Upcoming deadlines
Trading in shares of Kaisa, which has been looking to sell some of its assets to raise cash,
and three of its units was suspended last week, a day after an affiliate missed a payment to
onshore investors. Kaisa has the most offshore debt of any Chinese developer, after
Evergrande.
Evergrande is grappling with liabilities of more than $300 billion, which, if not
managed, could pose systemic risks to China's financial system.
Beijing has been prodding government-owned firms and state-backed property developers
to purchase some of Evergrande's assets, people with knowledge of the matter previously
told Reuters.
Some holders of offshore bonds issued by a unit of Evergrande had not received interest
payments due on Nov. 6 by Monday evening in Asia. Twice in October, Evergrande
narrowly averted catastrophic defaults on its $19 billion worth of bonds in international
capital markets by paying coupons just before the expiration of their grace periods. One
such period expires on Wednesday, Nov. 10, for more than $148 million in coupon
payments that had been due on Oct. 11. Evergrande is also due to make coupon payments
totaling more than $255 million on its June 2023 and 2025 bonds on Dec. 28. Shares of
Evergrande rose as much as 4% on Tuesday. Separately, shares of small developer China
Aoyuan jumped over 6%. Infini Capital told Reuters on Tuesday it had accumulated
shares of China Aoyuan's property management unit, Aoyuan Healthy Life Group,
continuously in the past few weeks to become its second-largest shareholder. Aoyuan
Healthy said last week it was in preliminary discussions with several independent third
parties regarding the possible disposal of a stake in certain units. Infini said it hopes
Aoyuan Healthy will sell the whole company rather than its assets.
2. FANTASIA REAL ESTATE
A Chinese developer of luxury apartments missed $315 million in payments to
lenders on Monday, sparking fears that financial strains in the country's outsized
property sector are spreading beyond the troubled Evergrande conglomerate.
Fantasia Holdings, a Shenzhen-based developer, missed repaying $206 million
worth of bonds that matured Monday, the company said in a stock exchange filing.
It is now assessing "the potential impact on the financial condition and cash
position of the group," it added.
Separately, the property management unit of Country Garden, China's second
largest developer by sales after Evergrande, said in a filing that Fantasia had failed
to repay a company loan of about 700 million yuan ($109 million). Fantasia had
informed the company that it would probably "default on [its] external debts,"
Country Garden Services added.
S&P and Moody's slapped "default" credit ratings on Fantasia and said the nonpayment of principal would likely also put the company in default on its remaining
bonds. "The downgrade follows Fantasia's announcement ... that it had missed
payment on its $205.7 million bond due on the same day, and reflects our
expectation of weak recovery prospects for Fantasia's bondholders after its
default," said Celine Yang, a senior analyst at Moody's. Fantasia shares were
suspended on Tuesday but shares of Country Garden Services tumbled 3.2% in
Hong Kong. Country Garden Holdings lost 2.8%.
The news revived fears that debt woes are deepening in China's overextended
property sector, which accounted for 29% of outstanding loans issued by Chinese
banks in yuan in the second quarter of 2021. The sector is vital to China's economy
real estate and related industries account for around 30% of GDP. "The [Chinese]
property sector is worrisome," wrote Larry Hu and Xinyu Ji, China economists for
Macquarie Group, in a research note on Tuesday. Fantasia's default shows that
Evergrande's troubles "could dampen the sentiment for homebuyers, developers
and banks, causing more developers to run into a liquidity crunch," they said.
The outlook for the Chinese property market is not encouraging. Property sales in
the top 30 Chinese cities plunged 31% in September from a year ago, according to
Macquarie's estimates. Evergrande's debt crisis has unsettled global investors in
recent weeks, raising concerns about a potential domino effect on the broader
Chinese economy and financial markets. The company's problems have been
brewing for more than a year, after Beijing started reining in the real estate sector
in August 2020 to curb excessive borrowing to prevent the market from
overheating.
Earlier this year, the Chinese government made it clear that it would prioritize
"common prosperity" in its policy goals and tame runaway home prices, which it
has blamed for worsening income inequality and threatening economic and social
stability. Evergrande's liquidity crisis has escalated in recent months. The company
warned investors of its cash flow crisis in September, saying that it could default if
it was unable to raise money quickly. In the past few weeks, it missed at least two
bond interest payments.
"While Evergrande's problems are unlikely to trigger a Lehman moment, they will
aggravate the ongoing property sector slowdown," said Louis Kuijs, head of Asia
economics at Oxford Economics, in a report on Tuesday.
"Given the large overall footprint of the residential real estate sector via 'backward
linkages' to sectors such as steel, its slowdown will weigh significantly on overall
economic growth," he said.Nevertheless, Chinese policymakers appear to be
standing firm. Last week, the People's Bank of China and the banking regulator
said that they would protect homebuyers. Their statement made no mention of
developers.
3. MODREN LAND REAL ESTATE
Modern Land is asking investors for more time to pay back a $250 million
bond, according to a company filing with the Hong Kong Stock Exchange on
Monday. The payment was due October 25. Modern Land said it wants to extend
that deadline to the end of January as it seeks to improve "liquidity and cash flow
management and to avoid any potential payment default."
The company said in a separate filing that Chairman Zhang Lei and President
Zhang Peng intend to provide about 800 million yuan ($124 million) in loans to
support the company. Shares in Modern Land fell more than 2% in Hong Kong on
Monday. The stock is down 45% this year.
News of the company's financial difficulties came on the same day China's second
biggest developer Evergrande faced another debt repayment deadline, this time for
about $148 million in interest payments on US dollar-denominated bonds,
according to Refinitiv data. Evergrande did not immediately respond to a request
from CNN Business for comment.
The embattled real estate conglomerate has been hunting for buyers for some of its
businesses as a major cash crunch threatens to sink the company. China's most
indebted developer has already missed interest payments on bonds. That has fueled
speculation over whether the company could see a Beijing-backed bailout,
restructuring or default.
Last week, its shares were suspended amid reports that a rival Chinese developer
was preparing to buy its property management business. Modern Land, based in
Beijing, calls itself the country's "leading operator of green technology industrial
homes," and says it has completed nearly 200 projects in more than 50 cities in
China and abroad.
China's property sector has grown rapidly in recent years, helping to power
economic growth. The sector accounted for 29% of outstanding loans issued by
Chinese banks in yuan in the second quarter of 2021. Including related industries,
it now accounts for around 30% of GDP.
Last year, the Chinese government started reining in the real estate sector to curb
excessive borrowing to prevent the market from overheating. Beijing has since
made it clear that it wants to tame runaway home prices, which it has blamed for
worsening income inequality and threatening economic and social stability.
Fantasia Holdings, a Shenzhen-based firm, also missed $315 million in
payments to lenders last week. The luxury apartment developer said in a stock
exchange filing at the time that it was assessing "the potential impact on the
financial condition and cash position of the group."