China’s real estate crisis is spreading

After Evergrande, it was the turn of Shimao Group, another big Chinese real estate name, to miss its debt repayment schedule. This development raises suspicions that China’s real estate crisis is spreading.

The Evergrande Building (centre) in Shanghai, China on September 24, 2021. Photo: AFP/VNA

WOMENHa investment is increasingly pessimistic

Shares of real estate group Shimao Group fell more than 17% on trading day 7/1 in Hong Kong after Reuters reported that the company had not fully repaid the trust loan. A subsidiary of Shimao Group later said it was in talks to settle the debt.

Specifically, Shimao failed to pay the remaining 645 million yuan ($101 million) loan, according to China Credit Trust, the trustee for the loan. Reuters news agency, citing two unnamed sources, confirmed the letter from China Credit Trust with the above content.

Thus, in addition to Evergrande, Shimao has been put into concern by investors with financial troubles.

“The reason the market is worried about this case (Shimao – BTV) is more than other real estate businesses that are in trouble. [là] because Shimao is a relatively healthy brand,” said Gary Ng, Asia-Pacific economist at investment bank Natixis (France).

Mr. Gary Ng said that Shimao has met all three “red lines” that Beijing sets for cash flow, assets, and capital levels of real estate businesses. The real problem of Shimao is that they are under great pressure to transform their business in the current situation.

Similarly, Guangzhou R&F Properties, a smaller real estate company, confirmed earlier this week that it did not have enough money to pay for its bonds, which was caused by selling properties to raise money.

In fact, China’s huge real estate industry has come under great pressure as Beijing has sought to reduce the debt reliance of real estate businesses over the past two years.

In the past few months, global investors have been paying close attention to the health and repayment capacity of Evergrande, the second-largest real estate group in China (in terms of sales) that is carrying a mountain of debt. $300 billion. The risk of Evergrande’s collapse and its contagion to the world’s second-largest economy also became the focus of attention.

According to Natixis, investor sentiment towards Chinese real estate businesses has become increasingly negative in the past few months. Before keeping an eye on Evergrande, in June 2021, the market only put 15% of Chinese real estate developers in the negative category. But nearly six months later, the rate more than doubled to 35% in December when Evergrande stopped paying investors on time and many other Chinese real estate businesses faced similar financial difficulties. .

International media reported that Evergrande defaulted on its debt in early December 2021, but the incident did not immediately cause a big shock to the market as investors had previously feared.

More warnings appear a lot of default

Based on the data on entrusted loans, expert Gary Ng from Natixis said Chinese real estate companies are having a harder time finding capital. Although the total capital in China’s trust portfolio has increased, its market share has decreased from 15% at the end of 2019 to 12% by September 2021.

“In the future, it wouldn’t be surprising if there were more defaults on bonds, loans, and other products,” he warned. This expert said that the best way to ease investors’ anxiety at the moment is news about a Chinese state-backed fund pouring capital into real estate businesses.

“Although both the central government and some local governments are easing measures, China’s property market still showed no tangible improvement in December, especially in low-end cities. more,” analysts at Nomura Financial Group (Japan) commented earlier this week.

Nomura estimates that Chinese real estate developers are facing huge debt repayment pressure when the value of US dollar bonds worth 19.8 billion USD will mature in the first quarter of 2022 and an The same $18.5 billion is due in the next quarter.