Messy fallout in $498 billion collapse of property giant Evergrande

The multi-billion dollar collapse of a Chinese property juggernaut earlier this week is expected to accelerate the downturn of an already tenuous real estate market.

The multi-billion dollar collapse of a Chinese property juggernaut earlier this week is expected to accelerate the downturn of an already tenuous real estate market.

On Monday, property giant Evergrande lost a two-year battle after a Hong Kong court ordered it to go into liquidation, leaving 1200 projects in limbo.

In 2021, the property developer earned the unwelcome title of the world’s most indebted real estate firm after getting into debt to the tune of $A408 billion. This figure has since risen to$A498 billion.

An aerial view of the Evergrande changqing community on September 23, 2021 in Wuhan, Hubei Province, China. Picture: Getty Images

In the more than two years that Evergrande tried to hang on, its struggle to survive has caused many Chinese citizens to abandon investments in the property industry.

And now that is only set to get worse.

When the news first emerged of Evergrande facing collapse, it sparked fears of a ‘contagion’, where other building developers would also topple like dominoes.

Indeed, another major player in the nation’s property sector, Country Garden, also defaulted on big loan payments. It was four times as big as Evergrande.

And experts have warned China’s property doom boom hasn’t even reached its lowest point yet.

“The market has not touched bottom yet,” Alicia Garcia-Herrero, chief economist for the Asia-Pacific region at Natixis, told The New York Times.

“There is still a long way to go.”

Evergrande’s collapse spells disaster for China’s property sector. Picture: Pedro Pardo / AFP

Even though the real estate market accounts for a quarter of China’s total Gross Domestic Product, its situation has been dire the past few years.

In 2023, China’s housing sales fell 6.5 per cent, according to Dongxing Securities, a Chinese investment bank.

Dongxing Securities also found that in December alone, China’s property sales were down a whopping 17.1 per cent from a year earlier.

At the same time, just as purchases slowed, so too did new developments. The number of building projects being undertaken dropped by 9.6 per cent in 2023.

Since 2021, when Evergrande’s abysmal debt position became widely known, more than 50 Chinese property developers have also followed in its footsteps by defaulting on their own debts.

Evergrande has ceased to be in the law’s eyes. Picture: Pedro Pardo / AFP

Many were expecting the Chinese government to stop the bubble from bursting, by stepping in and offering Evergrande a lifeline.

But this did not eventuate, in a sign of the CCP wanting to cool down its property market.

“Evergrande’s liquidation is a sign that China is willing to go to extreme ends to quell the property bubble,” Andrew Collier, Orient Capital Research managing director, told Reuters.

China event went as far to place onerous limits on home purchases several years ago to dissuade people from investing.

The new rule required home buyers to make large down payments, making it difficult to buy and become a serious property investor.

An abandoned Evergrande commercial complex called Evergrande Palace. Picture: Greg Baker / AFP

During the Monday court hearing where Evergrande was ordered to shut down, the judge, Justice Linda Chan, said that enough was enough.

“The hearing has lasted for one and a half years, and the company still has not been able to bring forward a concrete restructuring proposal,” she said.

“I think it is the time for the court to say enough is enough.”

It comes after Evergrande was spared from the same fate in December, with the judge granting the business a two-month extension to come up with a debt plan to pay back foreign investors.

But they were unable to present a convincing enough case.

In 2021 and 2022 Evergrande lost a combined 581.9 billion yuan (A$118 billion).

The company reported losses of 476 billion yuan (A$97 billion) in 2021 and 106 billion yuan (A$21 billion) in 2022.

By the end of 2022, Evergrande’s debt position rose to an eye-watering 2.437 trillion yuan (A$498 billion).

At the time, CNN noted that this amount equated to about two per cent of China’s entire GDP.

Originally published as Messy fallout in $498 billion collapse of property giant Evergrande