There is nothing that incenses the Chinese population more than money lost on realty. Evergrande is on the receiving end of that anger:
China Evergrande Group is facing mounting protests by homebuyers, retail investors and even its own employees, raising the stakes for authorities in Beijing as they try to prevent the property giant’s debt crisis from sparking social unrest.
Police descended on Evergrande’s Shenzhen headquarters late Monday after dozens of people gathered to demand repayments on overdue wealth management products. Protesters numbered in the hundreds on Sunday, Caixin reported.
There are 2421 words left in this subscriber-only article.
Start your free 14-day trial today!
Evergrande told employees at its office in Shenyang, near the border with North Korea, to work from home after staffers who bought the company’s WMPs staged a protest over the weekend, a person familiar with the matter said. In Guangzhou, angry homebuyers surrounded a local housing bureau last week to demand Evergrande restart stalled construction.
The firm responded with empty promises:
China Evergrande Group offered a plan to appease investors concerned about overdue payments for its high-yield wealth management products, according to people familiar with the matter.
The company proposed three options for buyers on Monday, said two clients who were informed by their product managers and asked not to be identified. They included repayment through cash installments, properties or investors’ payables on residential units they have already purchased, the people said. Caixin reported the revision earlier.
The scab grab is intensifying:
China Evergrande Group is in deep trouble. A debt restructuring is almost unavoidable at the real estate developer as it struggles to repay even its suppliers. Those wishing for an “orderly wind down” will end up disappointed and empty-handed. Those who come away with any semblance of their investment will have played politics to get to the front of the line. It’ll be like the Hunger Games.
What does an “orderly” endgame really mean? The vantage point is important. If you’re concerned that Evergrande will create financial contagion, you don’t have to worry too much. China has an incentive to ensure the stability of its banking system. Any unwinding of Evergrande, while inevitably involving haircuts, will be gradual and slow.
It’s different if you are a bond holder asking how much claim you have on Evergrande’s dwindling assets. You may have structural seniority — that is, first claim to assets in the event of a bankruptcy or liquidation — but it’s not going to matter. As long as Evergrande’s bonds are not in actual default, billionaire founder Hui Ka Yan can choose who he wants to redeem first. Those loudest on social media, or who cite China’s “common prosperity” drive, or even threaten street protests, will likely be paid off first.
You DO need to worry about financial contagion. Not for banks. For other developers. If bondholders are going to be shafted then the bond market for all developers is going to reprice tail risk much higher. That will place all sources of funding for all developers under stress.
Sure, the banks can be ordered to lend to whomever to fill the gap but that’s broad-based stimulus and is off the table until things get bad enough to trigger policymaker panic. We’re well short of that here as the article unwittingly illustrates. In the meantime, banks will tighten lending criteria to the segment:
And there is no end in sight:
In a statement, Hengda offers investors three options to cash out. They can either choose one or two of the three. 现金分期兑付、实物资产兑付、冲抵购房尾款兑付. Payment in cash in different installments, payment through physical assets, and payment through offsetting the unpaid portions of home payment.
“The discipline inspection and supervision group of the Ministry of Housing and Urban-Rural Development urges the implementation of supervision responsibilities of the real estate market” –驻住建部纪检监察组督促落实房地产市场监管责任————要闻—
Eight government departments, including the Ministry of Housing and Urban-Rural Development (MOHURD), have launched a three-year nationwide campaign to regulate the real estate market. Based on their responsibilities, the discipline inspection and supervision group of the CPC Central Commission for Discipline Inspection and the State Commission for Supervision in the Ministry of Construction strengthened political supervision, urged the local departments to give full play to their main role in the supervision of the real estate market, and promoted the solid development of the regulation and regulation work.
“The renovation work involves real estate development, housing sales, housing leasing, property services and other market players, to achieve the full coverage of the regulation scope, but also the real estate contract fraud, the purchase of loan funds whether there is a ‘business loan’, ‘consumer loan’ and other behaviors into the supervision category, It is fair to say that we should directly address the difficulties and pain points that the people feel strongly about.” In the construction of the ministry of discipline inspection inspection group concerned person in charge told reporters. Since this year, the group has carried out special research and supervision on the real estate market regulation for many times
关于持续整治规范房地产市场秩序的通知》， 在全国范围内部署开展为期3年的整治规范房地产市场秩序工作。 立足职责定位， 中央纪委国家监委驻住建部纪检监察组强化政治监督， 督促驻在部门充分发挥房地产市场监管主体作用， 推动整治规范工作扎实开展。
物业服务等多方市场主体，实现了整治范围全覆盖， 更将购房人是否受到房地产领域合同诈骗、 购房贷款资金来源是否存在套取‘经营贷’‘消费贷’ 等行为纳入监管范畴， 可以说直击人民群众反映强烈的难点和痛点问题。” 驻住建部纪检监察组有关负责人告诉记者。今年以来， 该组多次对房地产市场调控工作开展专项调研监督
While China’s big cities are stepping up measures to prevent a sharp increase in home prices, at least seven mid-sized cities are trying to limit price cuts by real estate companies, The Paper reported today.
The local governments of Zhuzhou and Yueyang in central China, Jiangyin and Heze in the east, Kunming in the southwest, and Shenyang and Tangshan in the north have met with real estate developers or issued restrictions on lower prices.
Editorial from the 21st Century Business Herald – “Adhere to regulation and control while doing a good job of risk prevention, and realize the orderly clearing of the real estate bubble.”
Undoubtedly, those real estate enterprises under pressure should sell their assets as soon as possible to cope with the liquidity pressure. Theoretically, the impact of the current policy mix on real estate enterprises and financial system should have undergone stress tests, and China is still preparing for large-scale public rental housing construction. Therefore, the decline in real estate investment in the market sector can be supplemented by public rental housing investment, thus playing a role in supporting the economy…
At present, we must continue to reverse market expectations through regulatory policies, punish some highly leveraged enterprises, and avoid a cyclical rebound.
I humbly suggest that this developer shakeout is nowhere near as ‘under control’ as markets think and as it worsens so too will demand for bulk commodities and base metals.