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Evergrande shares plunge as much as 87% as trading resumes after 17 months
- shopontk 3y ago[dead]
- Jianginstg 3y agoIt seems that there are no more assets left for Evergrande to sell.
- deleted 3y ago[deleted]
- rnk 3y agoThey have their good name.
- xwdv 3y agoFeels bad for the people paying mortgages for homes they’ll never get to see. They can’t just stop paying either. Doesn’t work that way.
- irjustin 3y agoGovernment needs to step in and investors need to write it as a total loss. Making people pay could collapse the entire economy.
- Jedd 3y ago> Government needs to step in and investors need to write it as a total loss. Ahh yes, the ol' "privatise the profits, socialise the losses" approach to big finance failures.
- zeroCalories 3y agoMeh. I understand property is pretty much the only viable investment a person can make in China, but these investors should have known what they were buying. Makes me think of idiots that lost big in crypto. The bubbles value has already been spent, so someone is going to have to bag hold. Either the government should buy and forgive all the debt, or the investors should get fucked for overplaying their cards. Maybe they can fake their death or escape to another country.
- bobthepanda 3y agoThe issue is that the bubble should’ve popped probably even five or ten years ago, but then the government allowed credit extension and the bubble kept on. The recent hard lines, with no sign of easing after multiple defaults, is a new thing.
- dirtyid 3y agoTBF arguably RE bubble was being addressed 5-10 years ago, there was domestic construction slump in 2012-2017 - where indicators like floor space completion and construction employment peaked. Then 2017 crack down on shadow banking which drove developers + local gov to increase presales, turning it into a financial instrument to keep the taps going. Then hard 3RL in 2020. Could have probably smashed skulls sooner and harder though.
- bobthepanda 3y agoWith how big the bubble has gotten a painful explosion was going to be inevitable no matter what. Markets considered expensive in the West have significantly lower house price to income ratios. In San Francisco it is 12.3x, in London it is 13.9x, in Paris it is 18.8x, and in Shenzhen it is a whopping 40x.
- noobermin 3y agoCould someone key me in to this? I thought generally the Chinese government never shied away from stepping in and manipulating things. Recent trends (for example, the government blaming young people themselves for their low employment numbers) feels like they imported the bootstraps mindset from American politicians, which seems out of step with what was seen as them being rather direct in control of their economy. Recent actions from the government seem to be opposite this.
- zeroCalories 3y agoChinese control of their economy isn't about altruistically helping everyone. A cynical perspective is that this is just more class conflict born from an Animal Farm style revolution.
- bobthepanda 3y agoSo it depends on who’s holding the bag. A lot of what counts as government spending is actually the central government telling provinces and cities to spend. Except those also have heavy debt burdens after years of stimulus. Very little central government money is trickling down. And the problem is not just that the developers are out of money, but their contractors have not been paid for months, those contractors have not paid their suppliers or workers for months, and down the line.
- Sakos 3y agoThey seem to be aware of the dangers of perverse market incentives and they also know the real estate market is completely shot. Propping up Evergrande doesn't fix the underlying issues while letting it fail would not just wipe out the wealthy, it would have severe negative impact on the middle class and everybody working in construction. People here are all "let it fail" and don't seem to care about how many millions of people would be drastically affected. These are people's lives we're talking about. Stop waving it away as if it doesn't matter. The callousness here is appalling. Also, don't look at what some politician says, regardless of country. What's important is what they do about perceived issues.
- deleted 3y ago[deleted]
- xwdv 3y agoNo, investors cannot just write it off as a total loss. Hard as it may be, it will be better to just burn an entire generation rather than draw the final curtain on the People’s Republic of China and possibly the world economy as we know it.
- matheusmoreira 3y agoWe're all gonna pay either way. Probably in the form of inflation.
- Mengkudulangsat 3y agoThey are doing mortgage boycotts in China as a form of collective action. Very interesting to see how that plays out. [1] https://www.reuters.com/world/china/chinas-mortgage-boycott-quietly-regroups-construction-idles-2022-09-19/ https://www.reuters.com/world/china/chinas-mortgage-boycott-...
- gonzo41 3y agoIn theory, being a socialist utopia, everyone should just get their house because of market failure which is outside of their control. (which is kind of what I think should have happened during the GFC, bank failure in your favour so to speak) But lets see how the utopia holds up to reality. Yay, we're living in interesting times.
- throwawaymaths 3y agoIn places those homes don't exist(https://www.reuters.com/world/china/unfinished-evergrande-apartments-central-china-buyers-seek-answers-2021-09-17/ https://www.reuters.com/world/china/unfinished-evergrande-ap...), or are of shoddy construction. Some have been torn down (https://www.cnn.com/2022/01/04/investing/evergrande-stock-gain-resume-trading-intl-hnk/index.html https://www.cnn.com/2022/01/04/investing/evergrande-stock-ga...). For many of those owners the house is not intended to be lived in but rather an investment vehicle. Somewhere i read that a majority of home owning families (sometimes extended families) in China have more than one home -- don't know if that's true.
- hojinkoh 3y agoIn the city I'm aspiring to buy a house (a.k.a. somewhere near Tokyo), you only need to put the down payment if the construction hasn't finished yet. There will be no mortgage until after the house is ready. I kind of think this may be a slightly better model in terms of homebuyer protection... (May not sound good for the developer though)
- ManuelKiessling 3y agoWhen a flat I‘ve bought in Germany was constructed, the payment to the developer happened „Zug-um-Zug“, that is, they received a total of like 7 payments as the development reached certain milestones. Had to take the whole mortgage up front in one go, though.
- seanmcdirmid 3y agoIn the USA, you obtain short term high interest financing until the home is completed, then you spin that into a mortgage. Most people buy almost completed new homes from developers, however, which means the developer takes that initial loan/risk.
- seanmcdirmid 3y agoIf they stop paying the mortgage, the bank can foreclose on their non-built house. Frankly speaking, the government is probably going to bail all of these people out; if they don’t the whole real estate sector could fall over. The practice of selling houses yet built is not limited to Evergrande.
- rdsubhas 3y agoIn most countries, if they stop on their mortgage, the bank can come after all their assets to recoup. Not just the non-built house.
- seanmcdirmid 3y agoIn most countries, you aren’t able to even get a mortgage on a house the bank can’t put a lien on. The banks are actually complicit here, but they are mostly state owned, so the government will manage fall out here in the direction away from social unrest.
- ChatGTP 3y agoThat’s a company name that didn’t age well.
- deleted 3y ago[deleted]
- hellothere1337 3y ago[flagged]
- noobermin 3y agoThe evergrande situation has nothing to do with the US or the trade war or the political tensions between PRC and the USA, it has more to do with the internal economic situation of China really.
- hellothere1337 3y agoThe internal economic situation if China is related to the external economic situation of China
- jldugger 3y agoIn what sense was the Evergrande situation caused by geopolitics? I was under the impression causes and effects were wholly domestic.
- irjustin 3y agoThis post screams agenda. What is "warning shot"? They shot themselves in the foot with a property bubble to anger the US!!?? I'd move on.
- rnk 3y agoThe US didn't have anything to do with evergrande afaik, and paying for property before it's built is a bad idea. But China can still try to deal with this by blaming the US for all ills and pushing for war with Taiwan to distract everyone - that works almost every time!
- FooBarWidget 3y agoOkay so where is all the media blaming the economic issues on US? I sure haven't seen any on TV.
- Humboldtsnee 3y ago[dead]
- rvz 3y agoThis aged well [0] when they finally defaulted. [0] https://news.ycombinator.com/item?id=29508238 https://news.ycombinator.com/item?id=29508238
- yieldcrv 3y ago[flagged]
- deleted 3y ago[deleted]
- 0xffff2 3y agoHaving read the article but not heard of Evergrande prior to this, what are the implications of this outside of China? The article mentions that the company filed for bankruptcy in the US, but not what US operations/developments they had.
- uLogMicheal 3y agoIt's more a question of, which hedge funds over-invested in Evergrande and similar real estate over the years as development was shifted to China?
- throwaway290 3y agoIf only hedge funds. Big pension funds, universities etc are throwing millions (billions?) of private/taxpayer money into China in recent years. A housing market collapse would not be good news for any of them...
- bobthepanda 3y agoA lot of the loans they took out were in dollars, so somebody abroad is now out a bunch of dollars.
- csomar 3y agoThey have $340bn of debt; even if they default on the whole amount, it's only 10% of China currency reserves. The problem, however, is not the nominal amount but how the company network is inter-connected with other companies (either abroad or locally). This amount, albeit not colossal (by China relative size) could trigger effects in other companies that will lead to their failure. This will go on until it becomes a full international crisis. Of course, it could mean that just some rich intercontinental people have lost money on some Chinese developer bond. The thing is, no one knows. Not the leaders of the CCP nor the US do have insights whether this can go somewhere to just stop here.
- slushh 3y agoWould it be worthwhile to create the insights? E.g. if there were a global registry of credit dependencies and ownership, at least for system relevant companies, we should know what is going to happen. But what is the worst that could happen? If companies fold, ownership will be transferred. As long as the companies are profitable, their business will continue.
- NotYourLawyer 3y agoWhy isn’t it down 100%? According to the article, they’re in bankruptcy with way more liabilities than assets. Presumably the shareholders are getting wiped out.
- lyjia 3y agothe market sees a 13% chance of a favorable outcome
- raincole 3y agoPSA: this is not how stock price works.
- petesergeant 3y agoI thought it was; help me understand where I'm wrong.
- quickthrower2 3y agoThe probability distribution is not binary win/lose
- raincole 3y agoI mean, yeah, the more optimistic the market is, the higher the price goes. But comparing % like this doesn't make any sense. If the price rises by 120%, the market see a 120% chance of favorable outcome?
- Leary 3y agoOccasionally the equity holders get some value during the restructuring process.
- Animats 3y agoBecause it already crashed before the trading halt. It's down over 98% from peak.
- 3y ago
- dvh 3y agoCan someone explain to me why is this problem? The houses that they've built are still standing, people can still live in them, what's the problem?
- woodruffw 3y agoPresumably the speculated value exceeds the value of the physical houses.
- yazaddaruvala 3y agoThey sold more than they have created. Ie they need money to finish the ones they have sold. And they have excess debts that their assets no longer cover because the housing market crashed. Additionally, they just took on obscene debts. The banks did not do the appropriate due diligence (hypothesis is the local governments interfered). But I know only what rando YouTube videos have told me.
- bboygravity 3y agoTLDR: there's a huge regulatory crisis going on in both the US and China markets (again). Now the failure of 1 large entity can crash entire empire(s). Basically the same corruption that societies have been battling ever since societies existed.
- slushh 3y agoWhat's the worst that can happen? It's all just numbers on papers or memory. When Evergrande folds, others will pick up the opportunity. Why should the government and the non-investors pay for government agencies that enforce regulations? If investors cannot handle due diligence, let them pay private agencies to secure their investments.
- alex_duf 3y agoAny financial crisis was just numbers on papers or memory. Yet implications are very tangible
- dilippkumar 3y agoAs a lay person, it has been extremely difficult to figure out what is going on. I have a weak grasp on four points(with low confidence on any of them being completely accurate): 1. There is an excess supply of apartments including the ones that have already been sold. The demand side is mostly people buying second and third units as investments. 2. China is going through a weird demographic situation. The younger generations are significantly fewer in number, they will need fewer apartments to live in. 3. Chinese provincial governments raise money by developing land and continue to be incentivized to build/approve/encourage a lot of apartment units. 4. All of this is funded with mortgages. Thing is, all four of these can not possibly be right. It’s a little too insane. Whoever is on the other side of all those mortgages should have abandoned ship a long time ago otherwise. What am I missing? Who is holding all that mortgage debt? Who is continuing to issue more of that debt? When do the number of people selling their investment properties exceed the number of younger generations looking to buy their first primary residence?
- baybal2 3y ago[dead]
- jamesaurichs 3y ago1.) "The demand side is mostly people buying second and third units as investments." that is incorrect. Most purchases are first purchases from couples that want to get married, and a home purchase is a required dowry from men that they need in order to get approved for marriage from the parents. There are famous online videos from newlyweds that purchased a condo from a few years ago, and have been documenting their journey, and they still haven't received the unit. Meanwhile their kid was born already. 2.) Yes, just google "empty kindegardens in China". Also, marriages dropped to the lowest since records began in 1986. https://www.theguardian.com/world/2023/jun/14/marriages-in-china-drop-to-record-low-despite-government-push https://www.theguardian.com/world/2023/jun/14/marriages-in-c... 3.) Nope. China’s government land sales revenue declined for the 19th consecutive month in July. Land sales fell 10.1% from a year earlier in July, after declining 24.3% the previous month https://www.reuters.com/article/china-economy-landsales/chinas-land-sales-revenue-down-for-19th-straight-month-in-july-idUSKBN2ZW0IE https://www.reuters.com/article/china-economy-landsales/chin... The Chinese local governments' bonds alone total at about $2 trillion, and any defaults would rock the Asian nation's $60 trillion financial system, according to Bloomberg. https://www.businessinsider.in/stock-market/news/chinas-10-trillion-hidden-debt-mountain-could-be-the-ticking-time-bomb-that-joe-biden-warned-of/articleshow/103104580.cms https://www.businessinsider.in/stock-market/news/chinas-10-t...
- agilob 3y agoWhy would they resume trading NOW, right after Longfor was mixed with mud? https://timesofindia.indiatimes.com/business/international-business/moodys-cuts-chinese-property-giant-longfors-ratings-to-cusp-of-junk/articleshow/103064184.cms?from=mdr https://timesofindia.indiatimes.com/business/international-b... It's not going to make people feel positive about their mortgages
- deadfish 3y agoI believe it is because the will get delisted if they are not trading for 18 months and they have not been trading for 17 months at this point.
- onetokeoverthe 3y ago[dead]
- onetokeoverthe 3y ago[dead]