China’s property market is mired in a crisis.
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Chinese property giant Evergrande’s shares have tanked 27% so far this week.
They slumped following a series of bad news over the last few days.
A former Chinese central bank official told Bloomberg that China’s property market could take a year to recover.
Recent developments at Chinese property giant Evergrande aren’t quite inspiring confidence in China’s real estate market.
The company’s troubles have been deepening recently, which have torpedoed its share prices.
On Tuesday, Evergrande’s shares tanked 7% by midday, extending a slump that took the stock down as much as 25% on Monday. This means Evergrande’s share price has plummeted 27% this week.
Evergrande is worth about 5.3 billion Hong Kong dollars, or $678 million, now – a massive fall from grace from the company’s heydays in 2017 when it was worth nearly 420 billion Hong Kong dollars.
Evergrande’s stock has been hit by a series of bad news in the last few days. They include the cancellation of key creditor meetings this week that were announced on Friday and another notice on Monday that it would be unable to issue new debt.
Late on Monday, Caixin, a Chinese financial news outlet, reported that Chinese authorities detained Pan Darong, a former chief financial official at Evergrande. Authorities also imposed restrictions on Xia Haijun, a former CEO at the property giant.
Evergrande’s main domestic unit, Hengda Real Estate Group, also announced late on Monday it failed to make payments on the principal and interest for a 4 billion Chinese yuan bond due on the same day.
The developments weighed on Evergrande shares, which have been massively volatile since the stock resumed trading on the Hong Kong stock exchange last month following a 17-month suspension since March 2022.
The massive slump in Evergrande shares also suggests that the worst is far from over for China’s property sector, wrote Junrong Yep, a market strategist at online trading platform IG, in a Tuesday note seen by Insider.
Investment in property in China fell about 19% in August from a year ago — marking its 18th straight month of decline, according to Reuters calculations based on official data released on September 15.
In fact, the property sales could take as long as a year to recover, Li Daokui, a former People’s Bank of China adviser told Bloomberg on Tuesday.
“The property market will come back as an important driver for the economy, however the magnitude of the impact of property as a growth engine will be much smaller,” Li told Bloomberg.
A real estate crisis has loomed over China since 2021
Evergrande — once China’s second-largest developer — faced a liquidity crisis in 2021 that triggered broader concerns about the country’s real-estate sector. The sector, along with related industries, contributes as much as 30% to the country’s GDP.
Evergrande had over $300 billion worth of liabilities by the end of 2022. The company filed for bankruptcy protection in the US on August 17.
China is trying to revive its property sector by stimulating consumer demand, but consumers are unlikely to be clamoring for new apartments amid record-high youth unemployment rate and slower economic growth, experts told Insider.
In fact, there are way too many empty homes in China. A former top China official said there could be enough vacant homes in China to house up to 3 billion people — which is nearly 10 times the population of the US.
China Evergrande shares on the Hong Kong Exchange were 7% lower 40 Hong Kong cents at midday on Tuesday.
Evergrande and former People’s Bank of China adviser Li did not immediately respond to requests for comment from Insider.