The harsh winter in the Chinese real estate market continues as mainland property developers face increasing debt and declining sales, prompting significant layoffs.
Currently, more than 50 Chinese developers have defaulted on international debts. According to the private think tank Keyan, focusing on Chinese real estate, approximately 500,000 people have lost their jobs. There are around 20 million unfinished residential units across China, estimated to require $440 billion USD to complete.
In March, resale prices in major cities dropped by 5.9%. Local governments are struggling to repay debts as they have lost revenue from selling land to developers. With the real estate and related industries, which previously accounted for around 25% of the domestic GDP, dragging down economic growth, the overall economy has become fragile.
On April 26, Nikkei Asia reported that Yuexiu Group Holdings, a mid-sized developer listed in Hong Kong, disclosed a reduction of staff from 1,985 to 1,211 employees, a 39% decrease by the end of last year.
Yuexiu Group did not reveal specific details of the layoffs, but Chairman Guo Yinglan stated in the report that due to the “current severe market environment,” optimization was necessary. The company mentioned a 23.8% year-on-year decrease in operating expenses in 2023, primarily attributed to reduced labor costs.
Yuexiu Real Estate is one of many defaulting Chinese developers. It failed to pay $842 million in interest on its offshore senior notes and missed the final deadline of $2.09 billion principal redemption. By the end of last year, the company’s outstanding bond debt totaled 38.71 billion RMB (approximately $4.95 billion USD), far exceeding its cash and cash equivalents of only 3.77 billion RMB. The company reported a net loss of 10.52 billion RMB last year, marking the second consecutive year of losses exceeding 10 billion RMB.
Similarly, Guangzhou-based Agile Group Holdings announced a staff reduction of over 40% for 2023, from 3,600 employees to 2,100. The company, like Yuexiu Group, did not elaborate on the layoffs, but Chairman Kong Jianmin expressed “sincere thanks” for the unwavering support and dedication from employees, directors, and management.
Agile Group saw a net loss of 18.73 billion RMB, nearly doubling from the previous year. The company defaulted on multiple offshore bonds and loans, triggering some cross-defaults. As of the end of 2023, total principal and interest payable amounted to 32.82 billion RMB. The auditing firm Ernst & Young also issued a similar statement warning of “significant uncertainties” for the company.
Another defaulting mid-sized real estate company, Hongyang Real Estate Group, based in Nanjing, reduced its workforce from 2,136 to 1,497 employees, a 30% reduction last year, without giving an explanation.
On April 16, Hang Seng Bank filed a winding-up petition against “Era China” in the Hong Kong High Court, citing the developer’s financial obligations of around $267 million USD.
By the end of last year, Era China Holdings also downsized by about one-third, from 2,656 to 1,757 employees.
The Wall Street Journal reported on April 16 that analysts from UOB Kay Hian wrote in a recent research report that considering the slow progress in reducing debt, “deteriorating profitability” remains a major concern for leading developers.
They also mentioned that most Chinese developers may continue to experience declining sales this year, potentially leading to more debt defaults.