China's real estate crisis may continue to crumble under massive debts even after the liquidation of the Evergrande Group, according to an expert.
Over the last two years, China's real estate sector has become a losing investment as more developers struggle to pay off loans and finish building properties that were sold in advance. This was laid bare Monday after a Hong Kong court ordered the liquidation of the China Evergrande Group after the company's debts ballooned to $300 billion. Evergrande was once China's largest seller of real estate until it defaulted on its $19.2 billion offshore debt in December 2021.
However, Alicia Garcia-Herrero, chief economist for the Asia-Pacific region at Natixis, believes China's real estate market may see further declines.
"The market has not touched bottom yet. There is still a long way to go," she said, as quoted by the New York Times.
How Bad Is China's Real Estate Crisis?
Since 2021, more than 50 Chinese real estate firms have defaulted on their debt. These included Evergrande and Country Garden, both of which dominated the country's housing market. An estimates 233 home developers also filed for bankruptcy in 2023, per Taiwan News, citing data from the China Real Estate Association.
The number of foreclosed residential homes in China also rose 43% year-on-year in 2023 to 389,000 units. In total, China has seen 796,000 units foreclosed last year, including commercial, industrial, and residential properties as well as land, garages, and parking spaces. That was 36.7% higher than the number of foreclosed units in 2022.
China's real estate industry began stalling in 2020 after the government curbed excessive borrowing of real estate developers in fear of a housing bubble following the COVID-19 pandemic. This left real estate developers with enormous debts and with more new housing units than potential buyers. Home prices across the country have also slumped, denting the savings of Chinese households.
Last year, imports and exports declined. Foreign investment into the country also dropped over 80% in the second quarter of 2023 compared to the same period in 2022.
Nomura Securities, a Japanese financial services firm, estimates there are about 20 million units of pre sold homes still waiting to be finished in China. This would required about $450 billion in funding to complete.
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