Last week, stock markets internationally plunged due to fears of a real estate bubble in China as their largest real estate developer, Evergrande struggled to make their interest payments on their outstanding bank loans as well as their bonds.
Analysts pointed to the interconnected nature of markets, reminding people that when the housing market crashed in the U.S. back in 2008, all global markets were impacted.
We asserted that the panic was overblown given that Evergrande has a tremendous amount of physical assets ($340 billion to be more precise), and that a restructure was possible which could put them back on track (rather than crumble – which was what markets seemed to imagine last week).
There has been a lot of speculation that the CCP (Chinese Communist Party) would begin pressuring state-owned businesses to prop up the developer.
Today, Evergrande’s stock is actually up as they have raised $1.5 billion in cash to meet their financial obligations.
How did they accomplish this? By selling their 20% stake in Shengjing Bank to the state-owned Shenyang Shengjing Finance Investment Group.
The money will only be applicable to their outstanding interest payments that are past due, and the Chinese government has not made any statement to the effect that they applied pressure or intervened.
The government has been pouring cash into the financial system to assuage fears, adding $15.5 billion to keep liquidity moving.
In a statement this week, the People’s Bank of China said they would “maintain the healthy development of the real estate market and safeguard the legitimate rights and interests of housing consumers.” The statement did not specifically reference Evergrande.
It is important that real estate practitioners keep their eye on this story as it has stoked consumers’ fears, especially when people don’t read beyond a headline.
There won’t be a pop quiz on how much cash Evergrande has on hand, but consumers may mention the Chinese real estate bubble elbowing markets here as a factor in their decision making. Understanding the bird’s eye view of what is going on will help Realtors better address the topic while in the field.
