A Hong Kong court ordered the liquidation of China Evergrande, the world’s most indebted property developer.
Evergrande has assets of about $245 billion, but owes about $300 billion.
Its demise is a “controlled collapse,” but still raises systemic risk and will hurt investors, says an analyst.
This is the best summary I could come up with:
But there are still concerns about how Evergrande’s fallout will affect the broader market, since the property sector contributes to about one-quarter of China’s GDP.
The court has appointed Alvarez and Marsal as liquidator to manage the company, Evergrande said in a filing to the Hong Kong Stock Exchange.
“Onshore stakeholders are busy working to ensure home purchasers will eventually receive the homes they have paid for one way or another, but retail ‘mom and pop’ investors in the company’s offshore securities will be facing even further uncertainty and delay which would likely continue for years,” Daniel Margulies, a partner at Dechert, a law firm that specializes in restructuring in Asia, told BI.
In July, Evergrande cited an analysis by Deloitte that estimated a recovery rate of 3.4% on its debt if the company is liquidated, per Reuters.
Debtwire data showed 32 developers in China managed to complete 42 restructuring processes covering 104 tranches of offshore bonds worth $33.1 billion from July 2021 — around the time the current property crisis started — to the end of October 2023.
“Evergrande’s liquidation is a sign that China is willing to go to extreme ends to quell the property bubble,” Andrew Collier, a managing director at Orient Capital Research, told Reuters.
The original article contains 1,049 words, the summary contains 209 words. Saved 80%. I’m a bot and I’m open source!
I am somewhat concerned about the global implications of this. Evergrande is a symptom of a deeper malaise in the Chinese real estate market.
I think it’s something like: CCP controls what investments citizens make. CCP wants to expand infrastructure and build up a lot of properties. The company gets overfunded. CCP also implements one child policy for like, idk four decades. Not enough people to live in all the properties they built that never relied on market demand.
This is from Economics Explained two years ago. It basically explains the whole thing, but it isn’t really a TLDR.
https://www.youtube.com/watch?v=lbH_8Nj51HU
If that’s too long, Peter Zeihan recently gave a fair summary in a six-minute video.
Here is an alternative Piped link(s):
https://www.piped.video/watch?v=lbH_8Nj51HU
https://www.piped.video/watch?v=JD3m6U6g53k
Piped is a privacy-respecting open-source alternative frontend to YouTube.
I’m open-source; check me out at GitHub.
is a symptom of a deeper malaise in the Chinese real estate market.
Its even worse than that because retail investors in China use real estate as their primary investment vehicle. Where as someone in the USA might put money in a 401k for retirement or a brokerage account for investing, those don’t exist (in the reliable way) in China. So many regular people’s nest egg is tied up in real estate. So this isn’t just the real estate market getting wiped out, its millions of working class people’s life savings just evaporated.
Not just a China thing. Canada is absolutely fucked with the government floundering to try and keep house prices from falling
Correct me if I’m wrong. I know that Canadian home prices are bonkers, especially in large cities like Vancouver or anywhere in the GTA (are the Quebecois also having this trouble?). However, the problem with Evergrande isn’t just failure of this company reduces home prices (which is where lots of Canadian savings resides), but Evergrande had taken deposits for tens of thousands of homes it never built or never completed.
So while the value/sale price of a home in Canada may be falling. At the end of the day it still does have value monetarily, and still serves a vital function of housing a family.
China’s situation with Evergrande means the money paid for the house by the owner simply evaporated with no possibility of a refund and the house doesn’t exist because it was never built (or never completed). So to me the China situation looks significantly more dire.
The chickens are finally coming home to roost with the decades of bullshit in commercial real estate worldwide without proper regulation. This isn’t unexpected to anyone with half a brain looking at the industry, which means it obviously completely blindsides major institutional investors who never even consider anything more than quarterly numbers in a vacuum. The pandemic exposed the systemic issues so quickly they couldn’t just brush it under a rug with misinformation.
I’m not saying it’s ideal or healthy.
But I don’t see how the west would have an upcoming issue with real estate.
People are still willing to pay increasingly large amounts of money for real estate and when locals can’t afford it they just bring in immigrants.
I’d be interested to know how the real estate valuation in the west is going to decrease.
I have a feeling that “too big to fail” will continue to be the mantra in the west for bailing these institutions out.
Let’s see if China have a capitalism with American characteristics and is going to rescue the company with public money, or if they’re going with a more theorical one and left it going broke.
Thats not what liquidation means.
To turn over to a trustee one’s assets and accounts, in order that the several amounts of one’s indebtedness may be authoritatively ascertained, and that the assets may be applied toward their discharge.
In America, the company would be handed a fat check.
They should start a couple utopian city experiments in those ghost suburbs they built way outside cities. Offer housing and a vision and put some academics in charge so we can learn something.
The problem is that those ghost cities aren’t actual cities. The housing is largely worthless and uninhabitable, crumbling before it’s even finished, often only “finished” to look that way from afar. You can’t actually do anything with it other than tear it down.
Oh I see, didn’t realize the construction quality was terrible:( So it was a sham the whole time? I thought they just didn’t think through the locations which made the housing useless (no work within reasonable commute).
The whole thing was essentially a real estate Ponzi scheme where new investors were paying for pre-existing work, from what I’ve read
It looks to me like there are a fair amount of finished homes with fine construction that are vacant due to this whole thing. Many weren’t completed but many were.
Fine construction? Based on what? Have you actually seen these ghost cities? There is nothing fine about them.
