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From a quick google Evergrande (officially) has 2.4 trillion Yuan in debt, and 1.7 trillion Yuan in assets. Assets seem to have lost more than 20% of their valu

From a quick google Evergrande (officially) has 2.4 trillion Yuan in debt, and 1.7 trillion Yuan in assets. Assets seem to have lost more than 20% of their value since 2019. It is the largest one of the Chinese real estate developers, but there are a couple others that might break through the 1T Yuan mark.

blackoil 3y ago
That is 90 billion USD shortfall. Assuming lenders will have to take some haircut the no. is big but not something that will break the economy!! am I missing some nos.?
- bobthepanda 3y ago
  One is that apparently a bunch of suppliers and contractors for their projects have not been paid for a while, so those will default or go bankrupt as well, and cascade further down the economy. The other thing is that Evergrande sold mostly through presales so now there are all those paid for but unfinished apartment blocks.
- deleted 3y ago
  [deleted]
- OtherShrezzing 3y ago
  The lenders in the Chinese housing market are mostly Chinese citizens. In modern China, rather than buying a house, you buy a promise of a house, then the house builder builds it for you. The house builders though have these huge debts, and they've been using money from new purchases to construct their backlog of homes. The $90bn outstanding is $90bn in outstanding housing construction, not just abstract debts to banks which could be written off or bailed out. Citizens will need to continue paying their mortgages on houses that don't (and won't) exist, which will cause some civil disquiet. Construction companies are going to have a shortfall of $90bn worth of work in their pipelines, which will mean mass layoffs. Entire large towns will go unbuilt. Evergrande isn't the only one in this situation, it looks like a handful of large house-builders also have these uncompleted backlogs being paid for with new orders. The collapse of one might prompt the collapse of the others. As house-buyers become less confident that their house will ever exist, they'll stop buying new stock. When they stop buying new stock, the other house-builders collapse under the burden of their backlog of construction projects.
  - tremon 3y ago
    That sounds suspiciously like a pyramid scheme: the only thing financing the current construction are payments to new construction. How did they get into this situation? By continuously selling under cost, or perhaps by siphoning off profits?
    - NhanH 3y ago
      Land price keeps increasing caused this problem. You can just imagine land price to increase 50% YoY (hypothetical number) and you will understand the situation. Basically you can not have enough cash on hand to purchase the next piece of land for your development, but you want to always plan for the next step.
      - benterix 3y ago
        The first time it happens, you can call it a mistake. But second, third? Is int't it obvious that, seeing this trend, you should calculate the risk and factor in the land cost increase when pricing your offer?
        NhanH 3y ago
        It's a different issue than what you are imaging. It's not that they sell the property for less than the relevant land cost, it's that the increase is too steep that they can't buy and build the next one without pre-selling the lot, the company just doesn't have enough cash.
        jjoonathan 3y ago
        The magnitude of land speculation profits is not dictated by physics. If companies weren't able to pay what they did, the speculators (local governments in this case?) would live with less. Developers compete with each other, so they will always take as much leverage as allowed, but the rules are adjustable by lenders. Lenders compete too, but they usually wind up backed by a central bank or other political entity, and that's the point at which changes can actually be made. Of course, there is no guarantee these changes won't create problems (Three Red Lines were a decade too late) but they can be made.
misja111 3y ago
> .. and 1.7 trillion Yuan in assets Note that this is the book value. Probably based on some valuation from years ago and only minimally adjusted, mean while property prices have crashed.

blackoil 3y ago

That is 90 billion USD shortfall. Assuming lenders will have to take some haircut the no. is big but not something that will break the economy!! am I missing some nos.?

bobthepanda 3y ago
One is that apparently a bunch of suppliers and contractors for their projects have not been paid for a while, so those will default or go bankrupt as well, and cascade further down the economy. The other thing is that Evergrande sold mostly through presales so now there are all those paid for but unfinished apartment blocks.
deleted 3y ago
[deleted]
OtherShrezzing 3y ago
The lenders in the Chinese housing market are mostly Chinese citizens. In modern China, rather than buying a house, you buy a promise of a house, then the house builder builds it for you. The house builders though have these huge debts, and they've been using money from new purchases to construct their backlog of homes. The $90bn outstanding is $90bn in outstanding housing construction, not just abstract debts to banks which could be written off or bailed out. Citizens will need to continue paying their mortgages on houses that don't (and won't) exist, which will cause some civil disquiet. Construction companies are going to have a shortfall of $90bn worth of work in their pipelines, which will mean mass layoffs. Entire large towns will go unbuilt. Evergrande isn't the only one in this situation, it looks like a handful of large house-builders also have these uncompleted backlogs being paid for with new orders. The collapse of one might prompt the collapse of the others. As house-buyers become less confident that their house will ever exist, they'll stop buying new stock. When they stop buying new stock, the other house-builders collapse under the burden of their backlog of construction projects.
- tremon 3y ago
  That sounds suspiciously like a pyramid scheme: the only thing financing the current construction are payments to new construction. How did they get into this situation? By continuously selling under cost, or perhaps by siphoning off profits?
  - NhanH 3y ago
    Land price keeps increasing caused this problem. You can just imagine land price to increase 50% YoY (hypothetical number) and you will understand the situation. Basically you can not have enough cash on hand to purchase the next piece of land for your development, but you want to always plan for the next step.
    - benterix 3y ago
      The first time it happens, you can call it a mistake. But second, third? Is int't it obvious that, seeing this trend, you should calculate the risk and factor in the land cost increase when pricing your offer?
      - NhanH 3y ago
        It's a different issue than what you are imaging. It's not that they sell the property for less than the relevant land cost, it's that the increase is too steep that they can't buy and build the next one without pre-selling the lot, the company just doesn't have enough cash.
        jjoonathan 3y ago
        The magnitude of land speculation profits is not dictated by physics. If companies weren't able to pay what they did, the speculators (local governments in this case?) would live with less. Developers compete with each other, so they will always take as much leverage as allowed, but the rules are adjustable by lenders. Lenders compete too, but they usually wind up backed by a central bank or other political entity, and that's the point at which changes can actually be made. Of course, there is no guarantee these changes won't create problems (Three Red Lines were a decade too late) but they can be made.

misja111 3y ago

> .. and 1.7 trillion Yuan in assets Note that this is the book value. Probably based on some valuation from years ago and only minimally adjusted, mean while property prices have crashed.