On the evening of August 12th, China Evergrande Group (Evergrande) announced that it will officially delist from the Hong Kong Stock Exchange (HKEX) on August 25th. The Chinese real estate industry has entered its fourth year of a downturn, continuing to drag down the Chinese economy. Bloomberg believes that Evergrande Group’s delisting marks a dim milestone in the Chinese real estate industry.
Evergrande was once the largest real estate developer in terms of sales in China. The group’s stock has been suspended since January 29, 2024, and as of July 28 this year, after 18 months of suspension, it failed to meet the conditions for resumption of trading, therefore failing to resume trading activities.
At the time of Evergrande’s delisting, the liquidators carefully reviewed the books and found that the group’s debt burden is currently around 350 billion Hong Kong dollars (45 billion US dollars), far higher than previously disclosed.
After over a year of careful review of Evergrande’s balance sheet and physical network, the liquidators gave a stern assessment, stating that the possibility of Evergrande completing a comprehensive restructuring is “out of reach”.
Bloomberg reported on August 13th that Kenny Ng, the international strategist at China Everbright Securities, stated, “This is a symbolic moment for the mainland real estate industry.” The plummeting stock prices in this instance “will leave a deep memory for all market investors.”
During the COVID-19 pandemic, China implemented a zero-COVID policy, severely impacting the Chinese economy. Following the lifting of zero-COVID measures, the Chinese economy has shown weak signs of recovery, with declining consumer confidence, oversupply, and escalating debt hindering the real estate market’s revival.
Currently, a large number of construction companies in China are facing difficulties, dragging down economic growth, and Evergrande’s collapse is the largest to date. The company was once the largest real estate developer in terms of sales in China and first defaulted on US dollar bonds in December 2021.
Despite government stimulus measures, real estate sales in China remain sluggish this year.
In early August, John Lam, the director of real estate research for APAC and Greater China at UBS Investment Bank, predicted that the downturn in the Chinese real estate market will exceed expectations.
Lam pointed out that weakening demand has prolonged the time it takes to sell houses, with the inventory turnover rate in first-tier cities dipping to an average of 14 months in March, but rising to 20.7 months by the end of June. This indicates that even major cities expected to rebound first will need more time to absorb housing inventory.
According to research data from CRIC, sales volume for the top 100 real estate enterprises in China has declined by over 20% for two consecutive months. This continued worsening trend suggests that the effects of stimulus plans since September 2024 are diminishing. In June, new home prices fell by 0.27% month-on-month, marking the largest drop in eight months.
Since the financial crisis in 2021, Hong Kong courts have issued winding-up orders to at least six Chinese developers. Evergrande Real Estate’s liquidation process remains the most complex and serves as a reference for other developers going through similar processes.
On Monday, August 11th, China South City Holdings Limited was ordered to wind up by the High Court of Hong Kong. This is the largest case of a Chinese property developer being liquidated after Evergrande in terms of asset size.
Chinese developers are facing approximately 150 billion US dollars in debt distress. Worse still, more and more construction companies that had reached critical stages of restructuring are now back to square one. Sunac China Holdings Limited became the first large Chinese construction company to implement a second debt restructuring plan.
A report published by Fitch Ratings in August also indicates that the mid-term risks in the overall Chinese real estate market remain high, with the phenomenon of sales differentiation in various cities expected to continue and possibly widen further.
Fitch believes that the first-half data shows the temporary nature of the recovery in the Chinese real estate market, with future developments hinging on macroeconomics, the job market, and residents’ income prospects. With the impact of US tariffs on Chinese exports, Chinese economic growth is expected to slow down, possibly affecting the sustainability of the real estate recovery.
In the mid-term, Fitch believes that the Chinese real estate sector still faces structural challenges such as an aging population, low housing affordability, and large inventory, particularly impacting second and third-tier cities.