China faces its worst real estate crisis with a clear message to construction companies: bankruptcy and the “new model”

From a great economic engine to a huge headache. The landscape of Chinese cities filled with cranes has long ceased to be a source of pride for the Chinese government Xi Jinping, who now sees these feathers – which often remain still for a long time – as a source of anxiety that threatens to get worse. Currently, after the crisis of Evergrande, the giant of this sector, rumors have already reached the Chinese company Vanke, Second oldest Promoter of the country through sales and support from the state. So, the government is just getting started notice For navigators: Real estate companies that are “dangerously bankrupt” and “unable to operate” will have no choice but to restructure or go bankrupt.

In Beijing they even talk about A “new model” Real estate.

“They will be forced to pay the due price.”. Sentence From the Chinese Minister of Housing, Urban and Rural Development, Ni HongIt targets real estate developers in your country, which is at the center of a complex crisis Universal dyes Which shakes the Asian giant. In a complicated scenario, where promoters were desperate for a government lifeline, Ne Difficult message With some strong phrases, such as: CNBC combines: “In the case of real estate companies that suffer serious insolvency and have lost the ability to operate, companies that should go bankrupt must do so, or be restructured, in accordance with the law and market principles.”

The minister affirmed a few days ago, within the framework of the annual parliamentary meetings, that “anyone who commits acts that harm the interests of the public will be investigated firmly and punished in accordance with the law.” Their words matter and the context in which they arrive matters, with important real estate developers defaulting on their debts and selling homes and buildings. In the fall: “They will have to pay the price due.” your letter It has been interpreted As a warning that struggling developers will not be able to count on a large bailout.

Popular attack… This is not the only key that Beijing has provided for how to manage the crisis. A few weeks ago Wall Street Journal (TWSJ) advanced In the face of the “collapsing” Chinese real estate market, the Communist Party plans to take a step forward. how? By giving greater weight to the state, companies have controlled a larger portion of the market in recent years. This approach is partly related to the real estate market in Mao Zedong's time, when the state exercised primary control and the party itself provided homes for a large part of the population.

One strategy is to increase the proportion of housing promoted by the state for rent or sale with a social focus. Information Who pays TWSJ It shows that today they represent 5% of the housing stock. The idea would be to double this number until it reaches at least 30%. Another plan is for the state to take charge of private projects that are facing difficulties and then rent or even market those homes.

…and the billionaire. The plan is ambitious and it certainly won't be cheap. Analysts pointed to the New York newspaper They are talking At a potential cost of up to $280 billion annually over the next five years, which means a global mobilization of about $1.4 trillion.

Regardless of the doubts that such a large number may generate, what Xi Qinping made clear is that he hopes to move forward this year towards a “new model” for the sector in which affordable housing promoted by the state will have an important role. . Specifically, there is talk of adding six million homes with these properties within five years.

Document 14. In 2023, the government issued a directive (Document 14) which called on cities with a large stock of private homes to purchase and convert unsold properties into public housing. Following this effort to convert private properties into affordable public housing Analysts They appreciate the effort to alleviate the brick crisis and encourage birth rates.

Since then, it has already moved from theory to practice: last December the Development Bank announced a 202 million yuan line of credit to the city of Fuzhou to build 701 affordable homes.

It's not easy for Beijing. how Remember who TWSHowever, its authorities are reluctant to provide direct liquidity support to developers, which could inflate the real estate bubble. The possibility of purchasing properties to convert them into rentals also raises related dilemmas, such as the price the government must pay or the owners' willingness to sell.

From a big driver to a big problem. This is the backdrop to China's real estate sector, which has seen it go from being one of the major drivers of the Chinese economy to a nuisance for Beijing. In its heyday, it was destined to represent alongside related industries 30% of GDP From the Asian giant, which is much higher than the weight reached by the sector in the United States. Today this sector is the center of the crisis that… It threatens to get worse Its consequences extend behind From the Asian giant.

Evergrande…and beyond. Try to Stop speculation Market and deflate the real estate bubble in a controlled manner, in 2020 the government established a series of “Red lines” Which set strict guidelines and limits on debt ratios, leverage and liquidity. The rest is known history.

Big developers like Evergrande fail to meet the standards Close the tap loans, difficulties in obtaining financing, failed pre-sales, unfinished buildings, and protests – an unusual sight in China – from buyers who refused to continue paying mortgages taken out for homes purchased off-plan, and who, in full Their real rights, the real estate storm, have not arrived and don't look like they ever will. In 2022, Standard & Poor's World Ratings Already encrypted Loans affected by the protests amounted to $145 billion.

Sector greats. letter Ne Hong's statement is firm and indicates that the government will not hesitate to let former real estate giants fall. “Those who are seriously insolvent and have lost the ability to operate, and those who should go bankrupt, must do so or be restructured.” The person in charge slipped Of the Ministry of Housing. His words come in a very specific context, where a large portion of the “old elite” in the national real estate sector is going through complex situations. When it's not being dramatic.

In January A Hong Kong court ordered Evergrande to be liquidated. The decision was made after the company failed to complete a restructuring agreement for a $330,000 million debt plan. Since alone some days It was also revealed that Vanke, the country's second-largest developer, has merged several subsidiaries in the south of the country amid rumors about its liquidity.

the pictures Mitch Altman (Flickr) And Visual capitalist

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