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Can 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?

by dvh 3y ago

woodruffw 3y ago
Presumably the speculated value exceeds the value of the physical houses.
yazaddaruvala 3y ago
They 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 ago
  TLDR: 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 ago
    What'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 ago
      Any financial crisis was just numbers on papers or memory. Yet implications are very tangible
    - ben_w 3y ago
      > What's the worst that can happen? The Great Depression, the Great Recession. > Why should the government and the non-investors pay for government agencies that enforce regulations? Apart from them being ostensibly a communist nation, it's good for business. Everyone's business. This is also why Greece got a lot of help from Germany and the IMF about 10-15 years back. > If investors cannot handle due diligence, let them pay private agencies to secure their investments. How? The investment is a promise to build a home.
      - sam_goody 3y ago
        >> What's the worst that can happen? > The Great Depression, the Great Recession. If China descends into chaos, it could be alot worse than the Great depression, since so much of the world depends on China, and since they have a crazy arsenal of weapons.
        ben_w 3y ago
        The Great Depression was almost certainly a contributing factor to WW2.
        qwytw 3y ago
        Yes, the nazis were a fringe political part polling below 3% before 1929. The Weimar republic was relatively stable and it seemed that the biggest economical issues were already behind..
    - itronitron 3y ago
      Worst that can happen? If banks have used peoples' savings to purchase Evergrande debt or anything related then the banks may not get repaid which would result in the banks losing peoples' money leading to people spending less money resulting in a recession or depression.
      - landemva 3y ago
        Instead of default the bad debt and a recession, what alternative is there? Prop it up a little longer? Default on everything, go to CBDC, and issue everyone monthly CBDC tokens to buy food?
        rightbyte 3y ago
        I guess you could forgive the loans people took for houses that were not built and let the bond holders share the hit.
        IG_Semmelweiss 3y ago
        I think some of the bondholders are banks. The others are ccp cadre. That will trigger a run.
    - SomeoneFromCA 3y ago
      Mandatory liberatarian "let the market decide" post.
    - oblio 3y ago
      > What's the worst that can happen? It's all just numbers on papers or memory. Pardon my French, numbers on paper my ass. Economic uncertainty leads to people killing themselves. Suicide rates go up during recessions and depressions. https://www.frontiersin.org/articles/10.3389/fpubh.2022.907052/full https://www.frontiersin.org/articles/10.3389/fpubh.2022.9070... > In general, economic crisis, unemployment rate and other macroeconomic measures are associated with increased risk of suicidal behavior at the aggregated level.
helsinkiandrew 3y ago
It's not a problem in itself, but a sign of the destress the company is in. Evergrande has huge debts and is struggling to pay suppliers. It has started (or received payments for) hundreds of thousands of units that could be abandoned if the company goes bust (many already are), leaving many people with nothing but mortgages for property that doesn'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...
raincole 3y ago
Philosophically the problem is always about how to distribute wealth instead of how much wealth we have. I'm not saying the problem of China. I mean the problem of humankind. Practically, just like any other real estate developer, they have tons of unfinished projects and now we don't know the future of them. And of course it's just one of the problems.
simonh 3y ago
Evergrande sells apartments before they are built to fund construction, and the purchasers pay mortgages during the build. If the company has insufficient funds to complete ongoing construction, which gets delayed, purchasers stop paying their mortgages and the company goes into a death spiral. Meanwhile purchasers get shafted, buildings stand uncompleted, and construction workers and materials suppliers see demand collapse.
- eweb101 3y ago
  This creates a situation where developer and homeowner interests aren’t aligned. Once the developer receives the money, they are not incentivized to deliver the house on time or do quality construction. The other model, where investors fund development before the house is sold, aligns both parties. The developer/investor wants to produce a good product so that it will sell at a high price and the buyer has the chance to inspect the property before purchasing.
  - curiousObject 3y ago
    >The developer/investor wants to produce a good product so that it will sell at a high price and the buyer has the chance to inspect the property before purchasing That should be a solution. But not usually that simple, sadly The developer/investor wants to produce a product that LOOKS good so that it will sell at a high price. Read the other comments about quality And, those investors often sell the property before it is finished or before it’s even started. So you have the same problem, with a longer chain of middlemen
  - ryukoposting 3y ago
    There's some truth to this, but the appearance of quality is far more important in the latter scenario than actual quality. The average buyer isn't a housing inspector. They may have googled some stuff beforehand, but that's not saying much. It's another incarnation of the "informed consumer" farce.
- aden1ne 3y ago
  Note this isn't merely a Chinese thing. A variation of this is in fact the default way new units get build and sold in the Netherlands, for example. Personal anecdote. I had a mortgage for 2 full years before being able to move in to my apartment because I bought it before a single stone was laid. The way this works here is that the money is held into an escrow account for most of time, with the construction company only receiving payments in installments (e.g. 'roof finished'). Lastly, the final 5% of the purchase amount is held back until 3 months after the unit is finished, which can be extended if large defects are found. Bankruptcy risk was covered with an insurance, which was a condition to the mortgage.
csomar 3y ago
It's a bit more complicated than that even if they have delivered all the houses. If they owe other companies huge amounts of money that they issued through debt bonds (and sold internationally), then it can affect companies and banks that are not related. Their physically ability to deliver homes is not what's at stake here.
FreshStart 3y ago
Evergrand and other I-companies all tried to become "everything" companies.. They invested heavily into other parts of the Chinese economy. Like ecars, manufacturing etc. and these parts are now going bankrupt too. I guess the ccp has about one or two years left, it will not weather this storm. To many life savings, dreams and futures get crushed right now. One can not eat bitter forever.
agilob 3y ago
>The houses that they've built are still standing No, they are demolishing whole empty cities to keep the prices up. https://asia.nikkei.com/Spotlight/The-age-of-Great-China/Concrete-ghost-towns-make-China-s-real-estate-bubble-visible https://asia.nikkei.com/Spotlight/The-age-of-Great-China/Con... https://www.youtube.com/watch?v=8AuWH2GdH1w https://www.youtube.com/watch?v=8AuWH2GdH1w
- seanmcdirmid 3y ago
  These probably aren’t the homes Evergrande has sold, mostly in south China. Ordos Kangbashi will never be populated because coal is on the way new out, a true ghost city that is only categorized as a success via goal post moving and lots of demolition (Ordos itself isn’t a ghost town, just this new district). The article talks about buildings in kunming being demolished. While kunming definitely went through a big bubble, I would hardly call it a ghost town now.
jamesaurichs 3y ago
There are a number, and I mean a large number of issues. I'll just pick a few 1.) as of 2021, There are nearly 800 unfinished Evergrande projects in more than 200 cities across China. https://www.nytimes.com/2021/09/28/business/china-evergrande-economy.html https://www.nytimes.com/2021/09/28/business/china-evergrande.... Even if the buildings were unfinished, the buyer still had to keep paying the mortgage!! and if they didn't, and the courts foreclosed the property and sold it, the buyer is liable for the fees and the differences. Most of the time the buyer is hugely underwater since the real estate price in 2023 has crashed 50% - 70% from peak. And now, because your social credit is shot, you no longer can purchase tickets for flight or train, making it even harder to try to find jobs to pay back your debt. 2.) China is known for its tofu dreg buildings. Just google online if you want to see brand new condos with facades blown off, cracked foundation, sand mixture where cement should be, tilted buildings, etc. This is especially true with buildings built in the last few years. And this is especially true for buildings from bankrupt mega developers like evergrande and country garden. 3.) This is a domino that leads to a series of systemic collapse. Country garden, the second largest developer in China, missed bond payments as small as 22 million recently. It had a capitalization of 60B in 2018. Now it has a debt of 200B. Zhongzhi enterprise missed payments recently, being one of the largest trust company. People are reminded of Lehman from these events. https://www.businessinsider.com/china-economy-beijing-lehman-moment-policy-deflation-economy-markets-property-2023-8 https://www.businessinsider.com/china-economy-beijing-lehman.... Doesn't help that export and import just collapsed by double digits in July, exports to US dropped 23% y/y, there's huge youth unemployment of at least 22%, foreign investment dropped 90% in 2023, and the worst flood in the last 50 years just hit China's biggest grain region. Oh yeah, and because Chinese citizens are outraged by Fukushima release, they are boycotting Japanese seafood, and in general all seafood, which has decimated the entire seafood industry in China overnight, with no traffic to seafood market or restaurants. 4.) Even if the buildings were done, a lot of the buildings are empty and not livable due to shoddy finish, foreclosures, no public amenities working, lack of residents (owners are selling the units at 50% price cuts), etc. Imagine living in a huge 50 story building with only a few residents at night. https://www.architecturaldigest.com/story/see-inside-a-ghost-town-of-abandoned-mansions-in-china https://www.architecturaldigest.com/story/see-inside-a-ghost...
- 3y ago
re-thc 3y ago
> what's the problem The problem is you assume they're legit. Who says they actually completed the projects (houses)? Who says there are no defects and that people can live in them? How do you even come to that conclusion? Just assume in good faith?
secondcoming 3y ago
There are videos online that show the deplorable construction standards used in some of these houses.
- Gareth321 3y ago
  Yeah many of these apartment buildings are so bad no one can move into them. They're often demolished a few years later. Construction standards just don't exist in China, and people are forced to continue paying mortgages on these properties under threat of prison. Given this extraordinary position of power and laissez-faire, the major construction companies have been way over-leveraging. Most analysts are confused as to why it has taken so long for the industry to collapse. The prevailing sentiment is that the government keeps stepping in every time another company is ready to fall. Eventually the government will just own all the construction companies directly, and the CCP has a poor investment and management track record.
- IG_Semmelweiss 3y ago
  >>>>deplorable construction standards used in some of these houses. I read "deplorable construction standards in some of these tree houses. " I was about to question your statement...
2OEH8eoCRo0 3y ago
If they were built, then where did the money to build them come from?
delfinom 3y ago
Imagine solving the affordable housing problem, but by doing so you create a nation scale ponzi scheme with trillions of dollars on the line because it also simultaneously made up the majority of your country's economic activity for 2 decades. That's what China is in the pickle with. It's great they have all this housing, except there's both nobody to live in them (they were investment homes) and there's all this debt tied up in even completing the ones that were ponzied out. They basically took the US 2008 Mortgage fiancnial crisis and said, WE CAN MAKE IT BIGGER, BY A LOT.

Can 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?

by dvh 3y ago

Can 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 ago

Presumably the speculated value exceeds the value of the physical houses.

yazaddaruvala 3y ago

They 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 ago
TLDR: 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 ago
  What'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 ago
    Any financial crisis was just numbers on papers or memory. Yet implications are very tangible
  - ben_w 3y ago
    > What's the worst that can happen? The Great Depression, the Great Recession. > Why should the government and the non-investors pay for government agencies that enforce regulations? Apart from them being ostensibly a communist nation, it's good for business. Everyone's business. This is also why Greece got a lot of help from Germany and the IMF about 10-15 years back. > If investors cannot handle due diligence, let them pay private agencies to secure their investments. How? The investment is a promise to build a home.
    - sam_goody 3y ago
      >> What's the worst that can happen? > The Great Depression, the Great Recession. If China descends into chaos, it could be alot worse than the Great depression, since so much of the world depends on China, and since they have a crazy arsenal of weapons.
      - ben_w 3y ago
        The Great Depression was almost certainly a contributing factor to WW2.
        qwytw 3y ago
        Yes, the nazis were a fringe political part polling below 3% before 1929. The Weimar republic was relatively stable and it seemed that the biggest economical issues were already behind..
  - itronitron 3y ago
    Worst that can happen? If banks have used peoples' savings to purchase Evergrande debt or anything related then the banks may not get repaid which would result in the banks losing peoples' money leading to people spending less money resulting in a recession or depression.
    - landemva 3y ago
      Instead of default the bad debt and a recession, what alternative is there? Prop it up a little longer? Default on everything, go to CBDC, and issue everyone monthly CBDC tokens to buy food?
      - rightbyte 3y ago
        I guess you could forgive the loans people took for houses that were not built and let the bond holders share the hit.
        IG_Semmelweiss 3y ago
        I think some of the bondholders are banks. The others are ccp cadre. That will trigger a run.
  - SomeoneFromCA 3y ago
    Mandatory liberatarian "let the market decide" post.
  - oblio 3y ago
    > What's the worst that can happen? It's all just numbers on papers or memory. Pardon my French, numbers on paper my ass. Economic uncertainty leads to people killing themselves. Suicide rates go up during recessions and depressions. https://www.frontiersin.org/articles/10.3389/fpubh.2022.907052/full https://www.frontiersin.org/articles/10.3389/fpubh.2022.9070... > In general, economic crisis, unemployment rate and other macroeconomic measures are associated with increased risk of suicidal behavior at the aggregated level.

helsinkiandrew 3y ago

It's not a problem in itself, but a sign of the destress the company is in. Evergrande has huge debts and is struggling to pay suppliers. It has started (or received payments for) hundreds of thousands of units that could be abandoned if the company goes bust (many already are), leaving many people with nothing but mortgages for property that doesn'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...

raincole 3y ago

Philosophically the problem is always about how to distribute wealth instead of how much wealth we have. I'm not saying the problem of China. I mean the problem of humankind. Practically, just like any other real estate developer, they have tons of unfinished projects and now we don't know the future of them. And of course it's just one of the problems.

simonh 3y ago

Evergrande sells apartments before they are built to fund construction, and the purchasers pay mortgages during the build. If the company has insufficient funds to complete ongoing construction, which gets delayed, purchasers stop paying their mortgages and the company goes into a death spiral. Meanwhile purchasers get shafted, buildings stand uncompleted, and construction workers and materials suppliers see demand collapse.

eweb101 3y ago
This creates a situation where developer and homeowner interests aren’t aligned. Once the developer receives the money, they are not incentivized to deliver the house on time or do quality construction. The other model, where investors fund development before the house is sold, aligns both parties. The developer/investor wants to produce a good product so that it will sell at a high price and the buyer has the chance to inspect the property before purchasing.
- curiousObject 3y ago
  >The developer/investor wants to produce a good product so that it will sell at a high price and the buyer has the chance to inspect the property before purchasing That should be a solution. But not usually that simple, sadly The developer/investor wants to produce a product that LOOKS good so that it will sell at a high price. Read the other comments about quality And, those investors often sell the property before it is finished or before it’s even started. So you have the same problem, with a longer chain of middlemen
- ryukoposting 3y ago
  There's some truth to this, but the appearance of quality is far more important in the latter scenario than actual quality. The average buyer isn't a housing inspector. They may have googled some stuff beforehand, but that's not saying much. It's another incarnation of the "informed consumer" farce.
aden1ne 3y ago
Note this isn't merely a Chinese thing. A variation of this is in fact the default way new units get build and sold in the Netherlands, for example. Personal anecdote. I had a mortgage for 2 full years before being able to move in to my apartment because I bought it before a single stone was laid. The way this works here is that the money is held into an escrow account for most of time, with the construction company only receiving payments in installments (e.g. 'roof finished'). Lastly, the final 5% of the purchase amount is held back until 3 months after the unit is finished, which can be extended if large defects are found. Bankruptcy risk was covered with an insurance, which was a condition to the mortgage.

csomar 3y ago

It's a bit more complicated than that even if they have delivered all the houses. If they owe other companies huge amounts of money that they issued through debt bonds (and sold internationally), then it can affect companies and banks that are not related. Their physically ability to deliver homes is not what's at stake here.

FreshStart 3y ago

Evergrand and other I-companies all tried to become "everything" companies.. They invested heavily into other parts of the Chinese economy. Like ecars, manufacturing etc. and these parts are now going bankrupt too. I guess the ccp has about one or two years left, it will not weather this storm. To many life savings, dreams and futures get crushed right now. One can not eat bitter forever.

agilob 3y ago

>The houses that they've built are still standing No, they are demolishing whole empty cities to keep the prices up. https://asia.nikkei.com/Spotlight/The-age-of-Great-China/Concrete-ghost-towns-make-China-s-real-estate-bubble-visible https://asia.nikkei.com/Spotlight/The-age-of-Great-China/Con... https://www.youtube.com/watch?v=8AuWH2GdH1w https://www.youtube.com/watch?v=8AuWH2GdH1w

seanmcdirmid 3y ago
These probably aren’t the homes Evergrande has sold, mostly in south China. Ordos Kangbashi will never be populated because coal is on the way new out, a true ghost city that is only categorized as a success via goal post moving and lots of demolition (Ordos itself isn’t a ghost town, just this new district). The article talks about buildings in kunming being demolished. While kunming definitely went through a big bubble, I would hardly call it a ghost town now.

jamesaurichs 3y ago

There are a number, and I mean a large number of issues. I'll just pick a few 1.) as of 2021, There are nearly 800 unfinished Evergrande projects in more than 200 cities across China. https://www.nytimes.com/2021/09/28/business/china-evergrande-economy.html https://www.nytimes.com/2021/09/28/business/china-evergrande.... Even if the buildings were unfinished, the buyer still had to keep paying the mortgage!! and if they didn't, and the courts foreclosed the property and sold it, the buyer is liable for the fees and the differences. Most of the time the buyer is hugely underwater since the real estate price in 2023 has crashed 50% - 70% from peak. And now, because your social credit is shot, you no longer can purchase tickets for flight or train, making it even harder to try to find jobs to pay back your debt. 2.) China is known for its tofu dreg buildings. Just google online if you want to see brand new condos with facades blown off, cracked foundation, sand mixture where cement should be, tilted buildings, etc. This is especially true with buildings built in the last few years. And this is especially true for buildings from bankrupt mega developers like evergrande and country garden. 3.) This is a domino that leads to a series of systemic collapse. Country garden, the second largest developer in China, missed bond payments as small as 22 million recently. It had a capitalization of 60B in 2018. Now it has a debt of 200B. Zhongzhi enterprise missed payments recently, being one of the largest trust company. People are reminded of Lehman from these events. https://www.businessinsider.com/china-economy-beijing-lehman-moment-policy-deflation-economy-markets-property-2023-8 https://www.businessinsider.com/china-economy-beijing-lehman.... Doesn't help that export and import just collapsed by double digits in July, exports to US dropped 23% y/y, there's huge youth unemployment of at least 22%, foreign investment dropped 90% in 2023, and the worst flood in the last 50 years just hit China's biggest grain region. Oh yeah, and because Chinese citizens are outraged by Fukushima release, they are boycotting Japanese seafood, and in general all seafood, which has decimated the entire seafood industry in China overnight, with no traffic to seafood market or restaurants. 4.) Even if the buildings were done, a lot of the buildings are empty and not livable due to shoddy finish, foreclosures, no public amenities working, lack of residents (owners are selling the units at 50% price cuts), etc. Imagine living in a huge 50 story building with only a few residents at night. https://www.architecturaldigest.com/story/see-inside-a-ghost-town-of-abandoned-mansions-in-china https://www.architecturaldigest.com/story/see-inside-a-ghost...

3y ago

re-thc 3y ago

> what's the problem The problem is you assume they're legit. Who says they actually completed the projects (houses)? Who says there are no defects and that people can live in them? How do you even come to that conclusion? Just assume in good faith?

secondcoming 3y ago

There are videos online that show the deplorable construction standards used in some of these houses.

Gareth321 3y ago
Yeah many of these apartment buildings are so bad no one can move into them. They're often demolished a few years later. Construction standards just don't exist in China, and people are forced to continue paying mortgages on these properties under threat of prison. Given this extraordinary position of power and laissez-faire, the major construction companies have been way over-leveraging. Most analysts are confused as to why it has taken so long for the industry to collapse. The prevailing sentiment is that the government keeps stepping in every time another company is ready to fall. Eventually the government will just own all the construction companies directly, and the CCP has a poor investment and management track record.
IG_Semmelweiss 3y ago
>>>>deplorable construction standards used in some of these houses. I read "deplorable construction standards in some of these tree houses. " I was about to question your statement...

2OEH8eoCRo0 3y ago

If they were built, then where did the money to build them come from?

delfinom 3y ago

Imagine solving the affordable housing problem, but by doing so you create a nation scale ponzi scheme with trillions of dollars on the line because it also simultaneously made up the majority of your country's economic activity for 2 decades. That's what China is in the pickle with. It's great they have all this housing, except there's both nobody to live in them (they were investment homes) and there's all this debt tied up in even completing the ones that were ponzied out. They basically took the US 2008 Mortgage fiancnial crisis and said, WE CAN MAKE IT BIGGER, BY A LOT.