{"id":47126,"date":"2021-12-10T05:25:15","date_gmt":"2021-12-10T05:25:15","guid":{"rendered":"https:\/\/qatar-news.org\/qatarnewsEn\/?p=47126"},"modified":"2021-12-10T05:25:15","modified_gmt":"2021-12-10T05:25:15","slug":"evergrande-default-signals-volatility-but-no-crash-analysts-say","status":"publish","type":"post","link":"https:\/\/qatar-news.org\/qatarnewsEn\/?p=47126","title":{"rendered":"Evergrande default signals volatility but no crash, analysts say"},"content":{"rendered":"
\n

The defaults of Evergrande and Kaisa \u2013 two of China\u2019s largest property developers \u2013 signal a prolonged period of volatility for China\u2019s indebted real estate market, but analysts expect that Beijing will contain the damage.<\/p>\n

Fitch Ratings on Thursday declared Evergrande in restricted default<\/a> after it failed to repay its overseas bondholders 82.5m in interest payments that were due earlier in the week. Fitch also declared Kaisa Group Holdings in restricted default after it failed to repay a $400bn bond that matured on Tuesday.<\/p>\n

Shehzad Qazi, managing director of China Beige Book International, told Al Jazeera China\u2019s real estate sector would face \u201cstress for the foreseeable future\u201d but a broader market crisis appeared to be unlikely.<\/p>\n

\u201cBeijing is attempting to shield the broader property sector from the Evergrande implosion,\u201d Qazi said.<\/p>\n

Henry Chin, head of research for the Asia-Pacific CBRE, told Al Jazeera he expected a \u201ccontrolled landing\u201d even as Beijing pushed ahead with its campaign to lessen the economy\u2019s reliance on real estate.<\/p>\n

\u201cThe Chinese central government will likely remain committed to its policy stance that \u2018housing is for living in, not for speculation\u2019, and the \u2018three red lines\u2019 continue to curb excess speculation and over-leveraging in the sector,\u201d Chin said.<\/p>\n

\u201cAs a result, market volatility should continue to persist with more defaults still to come \u2013 the peak of corporate real estate debt maturity is in 2022, with $55bn in debt set to mature. But we\u2019re likely to see a controlled landing and regulators have recently issued more easing signals to meet reasonable financing needs in the real estate sector.\u201d<\/p>\n

Chin said Beijing\u2019s measures to avoid a crash landing included \u201cexpressed support for bond issuance by developers to fund merger and acquisition activity, capital raising by less-leveraged developers via corporate bonds to repay maturing offshore debt, and a relaxation of home purchase policies to include upgrading demand\u201d.<\/p>\n

\"ChinaBeijing has taken steps to support the construction of new homes [File: Udo Weitz\/EPA]<\/figure>\n

Janz Chiang, an analyst at Trivium China in Beijing, said it remained a priority for authorities to ensure the construction of new homes continued.<\/p>\n

\u201cThings are about to get messier for Evergrande as it formally defaults and cross-default clauses are triggered on its other debts,\u201d Chiang said.<\/p>\n

\u201cAs shown in the makeup of Evergrande\u2019s recently established risk management committee, the state will play a more prominent role in finding solutions to Evergrande\u2019s problems and formulating an acceptable restructuring plan. A bailout remains out of the question, but state firms would likely act as strategic investors or buy up some of Evergrande\u2019s projects to ensure that units get delivered.\u201d<\/p>\n

China\u2019s real estate sector accounts for more than a quarter of the country\u2019s economic activity, but since August 2020, Beijing\u2019s \u201cthree red lines\u201d lending restrictions have squeezed over-leveraged private developers<\/a>, such as Evergrande, pushing them close to bankruptcy.<\/p>\n

Evergrande, which has outstanding offshore bonds worth $19bn, and Kaisa, which has offshore debt worth $12bn, are just two among a growing number of Chinese developers that are engulfed in China\u2019s liquidity crisis. Analysts have predicted more defaults at other Chinese property developers are likely in the near future.<\/p>\n

Evergrande has liabilities exceeding $300bn, leading some observers to fear a default could collapse the Chinese property market and the country\u2019s economy. Beijing has moved to ring-fence Evergrande and set up a risk management committee to manage a restructuring of the company to prevent a crash.<\/p>\n

Evergrande, one of China\u2019s largest firms, missed a series of interest payments from September, but avoided default until this week by transferring the funds before the end of the 30-day grace period.<\/p>\n

CBRE\u2019s Chin said China\u2019s era of residential real estate-led growth could be over as commercial property becomes a bigger driver of economic expansion.<\/p>\n

\u201cThanks to the government\u2019s commitment towards an innovation-driven economy in the medium to long-term, the commercial real estate market is maturing rapidly in areas such as logistics properties, data centres, and life sciences facilities,\u201d he said. \u201cWe remain optimistic on China\u2019s commercial real estate sector as an engine of growth, backed by underlying drivers such as urbanisation and middle-class growth.\u201d<\/p>\n

\u2018Weaker growth\u2019<\/h2>\n

Evergrande\u2019s default is likely to have a ripple effect on other markets and economies. Australia, one of China\u2019s biggest trading partners, has already seen a steep drop in iron ore prices as construction slows down in the Chinese market.<\/p>\n

\u201cThe China property market slowdown will translate to weaker growth for the economy as a whole,\u201d Qazi said. \u201cMetals and energy commodities producers will feel the pinch first both at home and abroad. But this will extend to a variety of industries, ranging from machinery and industrial metals manufacturing to furniture and appliance wholesalers and retailers.\u201d<\/p>\n

Qazi said the opaque nature of China\u2019s economy and questionable accuracy of official statistics would make it difficult to track conditions going forward.<\/p>\n

\u201cThe only way to understand how Beijing is managing the property market restructuring is to track how businesses are performing \u2014 if they\u2019re accessing credit, and if that credit is going into productive uses,\u201d he said.<\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

The defaults of Evergrande and Kaisa \u2013 two of China\u2019s largest property developers \u2013 signal a prolonged period of volatility for China\u2019s indebted real estate market, but analysts expect that Beijing will contain the damage. Fitch Ratings on Thursday declared Evergrande in restricted default after it failed to repay its overseas bondholders 82.5m in interest…<\/p>\n","protected":false},"author":10,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-47126","post","type-post","status-publish","format-standard","hentry","category-spotlight_news"],"_links":{"self":[{"href":"https:\/\/qatar-news.org\/qatarnewsEn\/index.php?rest_route=\/wp\/v2\/posts\/47126","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/qatar-news.org\/qatarnewsEn\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/qatar-news.org\/qatarnewsEn\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/qatar-news.org\/qatarnewsEn\/index.php?rest_route=\/wp\/v2\/users\/10"}],"replies":[{"embeddable":true,"href":"https:\/\/qatar-news.org\/qatarnewsEn\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=47126"}],"version-history":[{"count":0,"href":"https:\/\/qatar-news.org\/qatarnewsEn\/index.php?rest_route=\/wp\/v2\/posts\/47126\/revisions"}],"wp:attachment":[{"href":"https:\/\/qatar-news.org\/qatarnewsEn\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=47126"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/qatar-news.org\/qatarnewsEn\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=47126"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/qatar-news.org\/qatarnewsEn\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=47126"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}