Chinese Property Developers Crashing [not cashing] Out
How problems in the Chinese apartment market cause ripple effects ...
More and more commentators are increasingly concerned about the failures in the Chinese strata apartment development sector and the impacts it might have around the world. Do Australian strata stakeholders need to worry?
[2:50 minutes estimated reading time, 455 words]
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Last week I wrote about the hard-core way regulators and developers handled a stalled and defective strata apartment complex in Kunming in my article ‘A Chinese Solution for Defective Apartment Buildings: Or, what getting tough on strata builders & developers really looks like ... ‘
But, I was really only focusing on the strata apartment defect angle.
Since then, a range of media outlets have expanded coverage of the Chinese property development and construction sector that suggests the housing bubble might be bigger and have more serious consequences in China and elsewhere.
ABC News ran the following report about these issues and the financial difficulties facing Evergrande, one of China’s biggest developers, which is worth watching.
The New York Times in its article ‘Evergrande Crisis Shows Cracks in China’s Property Market’ also reports on the problems at the Evergrande Group who has more than 1,600,000 unfinished apartments but more than $100 billion is due to suppliers of building materials and has led to falls on many international stock exchanges.
The Washington Post in its article ‘China Evergrande veers toward default — and a $300 billion global shock’ reports about the potential $300 billion size of an Evergrande default.
The Sydney Morning Herald in its article ‘Contagion worries as Chinese property developer Sinic sinks 87pc’ points out how another Chinese property developer, Sinic Holdings Group, shares dropped 87% and trading has been suspended.
As the news indicates, the significant size, global reach, and secondary impacts of the Chinese property development and construction mean that partial collapses and defaults [let alone major financial failures] would have significant ripple effects around the world.
And, perhaps even more worrying is how this forces the Chinese government to intervene and deal more aggressively with these market failures in circumstances where their recent actions in other business sectors [like the technology sector with Alibaba and Tencent, cryptocurrency, and online education] as part of its new 10 point plan have been very heavy-handed and dramatic. Plus, as this opinion piece by David Ignatius in The Washington Post suggests, there’s an increasingly Maoist/Cultural Revolutionary approach being taken by President Xi Jinping.
So, we’re likely to see a more idealistic and heavy handed approach by China to deal with what appears to be western economic excesses. And, after all, if you’re happy to demolish 15 buildings that haven’t been finished for a while and have some defects, you’re not scared to take other tough action.
Given Australia’s close connections to China as a supplier of raw materials and as the beneficiary of investment in medium and high-density real estate, I’d say we won’t be immune from those outcomes.
These stories are likely to be just the beginning with a few more twists and turns as the ‘correction’ takes place in the Chinese apartment development sector.
September 23, 2021
Francesco …