The Chinese are not buying as much as they used to. Country Garden, China’s largest real estate developer, announced its first annual loss in 15 years on Thursday, as the country’s real estate sector is going through a serious crisis that threatens the survival of its competitors.
The Chinese real estate sector has experienced a boom since the liberalization of the market in the late 1990s, in a country where the acquisition of property is often a prerequisite for marriage and an investment. But to reduce the sector’s indebtedness, the Chinese authorities reduced from 2020 the conditions of access to credit for promoters. The poor financial health of the heavyweight of the sector, Evergrande, on the verge of bankruptcy, is also chilling buyers and contributing to further aggravate the crisis in the sector.
Fall in demand for real estate
Many developers have since struggled to survive, while the economic slowdown and uncertainties linked to Covid-19 in China caused demand for real estate to plummet last year.
In this context, Country Garden recorded some 6 billion yuan (more than 800 million euros) in losses over the whole of 2022, it said in a statement to the Hong Kong Stock Exchange where it is listed. . This is the first time since its IPO in 2007 that the promoter has recorded results in the red. In 2021, Country Garden had still made a profit of 26.7 billion yuan (3.5 billion euros at the current rate).
Analysts say Country Garden is more vulnerable than its competitors because its main customers are migrant workers with lower incomes. Sign of this vulnerability, the majority shareholder of Country Garden, Yang Huiyan, also the richest woman in Asia, had seen in July his fortune melt by half to 11.3 billion dollars, according to the Bloomberg agency. Real estate, which together with construction represents about a quarter of China’s GDP, supports an army of low-skilled workers, an important guarantee of social stability.
Debt restructuring plan
To revive this key sector, however, the government seems to have adopted a more conciliatory approach in recent months. China announced in January that it was easing the financing conditions for thirty real estate groups reputed to be healthy, of which Country Garden is a part. In a generally sluggish market, the big promoters are trying to stay afloat. Evergrande, whose precarious financial situation worries the markets, presented last week the draft of a plan for restructuring its debt, which will however still have to be approved by its creditors. Its competitor Sunac, one of China’s largest promoters, did the same on Tuesday, ten months after announcing that it was in default.
In 2019, at its heyday, the group claimed more than 50,000 employees. Two years earlier, the firm had acquired hotels and tourist sites from the conglomerate Wanda, a compatriot then pinned down by Beijing for its frenzy of purchases abroad and its indebtedness. For this transaction, presented at the time by the press as the “contract of the century”, Sunac had spent 63 billion yuan (8.4 billion euros at the current exchange rate).