Marco Metzler from Switzerland gets 2,000 new followers a day on LinkedIn, all watching what will happen to his money. Metzler last month invested $50,000 in offshore bonds from real estate developer China Evergrande Group to see if it would yield any returns. Former Fitch Ratings analysts aren’t expecting much. He’s set to prove a point about China’s troubled property sector by chronicling the fortunes of his investments on social media.
“I was worried about what was happening, and from my past I’ve been able to read rating reports and see what’s happening in the world in economics, and I’ve got to talk to the world and talk about it.” felt obliged to warn the situation,” Metzler told VOA. “We didn’t invest to get the money back, so I know full well it will be lost.”
Evergrande has struggled since last year, when the Chinese government began tightening the noose on the country’s property sector to rein in speculation of excessive debt and caps.
Towering apartment blocks today extend to the suburbs of major Chinese cities, but many flats remain vacant, owned by absentee speculators and their banks. Evergrande Group, one of China’s largest property developers by revenue, is now selling assets and may undergo a massive restructuring to reduce debt.
Companies or governments that invest in offshore bonds, and individuals who trade listed stocks outside of mainland China and its $15.42 trillion economy, are at odds with the 2021 Chinese asset crisis – though more quietly than Metzler’s. Coming to terms. These troubles are threatening bond returns, could plummet some stock prices and destroy at least a quarter of the world’s second-largest economy.
“I don’t think anyone debates the importance of the real estate market on the Chinese economy,” said James McDonald, head of property services firm Seville Research in Shanghai, which estimates real estate at 25% to 30% of China’s economy. puts.
“If we see a significant slowdown in the real estate market, it will have implications in terms of domestic economic growth, and it could have implications in terms of the global economy,” Macdonald said.
As many analysts have noted, countries closely tied to the global manufacturing supply chain, and whose large consumer bases rely on importers and exporters, will inevitably feel the worldwide impact of any major economic shock affecting China. is done.
The asset crisis: Evergrande and beyond
Evergrande is a Belvedere firm with more than $300 billion in debt. Hong Kong-listed shares in Evergrande have declined since February, though the developer averted a default in October by paying interest on foreign bonds.
Another Chinese growth giant, Casa Group Holdings, is facing limited funding access and uncertainty over whether to refinance a “significant amount” of US-dollar bond payments next year, Fitch said in an e-mailed news release. Released last month.
Lillian Li, vice president-senior credit officer at Moody’s Ratings Service, said smaller property developers could stir up the bond market outside China because they are “less of a voice” than larger ones.
“We see that in the face of these regulatory cracks, including the asset sector, the offshore bond market has actually shown greater volatility than the domestic market,” Lee said.
The Hang Seng Properties Index in Hong Kong, where foreigners are allowed to trade shares of Chinese companies, has lost about 1.2% year to date.
Municipal authorities in some cities capped home purchase prices in September to deter speculators, further spurring property movement in China. Lee said the domestic property market could shrink by half a percent in 2022. Last month, prices for new and resale homes fell amid a drop in construction starts.
what happens next
The state-run China Daily News website says Evergrande has offered its investors to pay cash in installments as well as offering real structures as repayment assets.
According to the official Xinhua news agency report, the central government officials are expected to put an end to the speculation of the property and leave the property for the possession of the people.
About $52 billion in Chinese asset bonds will mature next year and $44 billion next year, said Henry Chin, Asia Pacific research head at real estate services firm CBRE. He anticipates that other bond issuers will default.
No offshore investor wants bonds anymore, said Liang Kuo-yuan, president of the Taipei-based Yuanta-Polaris Research Institute, although he believes Taiwan’s insurers and pension funds have invested in the past.
“Taiwanese insurers will more or less buy high-yield and high-risk investment products because the interest rates on policies they have sold in the past are very high,” Liang said.
Evergrande was once seen as a symbol of the Chinese property mainland market, Liang said. Investment bank JPMorgan says China’s real estate sector, the world’s largest, grew rapidly from 2010 to 2018.
But all is not over, some analysts say.
CBRE’s Chin said investors in private equity for distressed debt could get a lift from China’s asset spillover, if companies explore new ways to repay debt. Some stock buying vehicles have also made money. For example, shares of the TAO-Invesco China Real Estate Exchange-traded Fund of Chinese stocks, including Evergrande, are up 65% so far.
But back in Switzerland, Metzler wrote on LinkedIn that Evergrande had “officially defaulted on overdue interest payments” and that his current company, DMSA, would file a bankruptcy case against the group. He calls China’s property market “the first domino” in a broader financial and economic crisis.
“The old system needs to come down before the new system can be installed,” he told the VOA.