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In the near term, Evergrande&rsquo s debt problems could adversely impact China&rsquo s property market as lenders tighten extending credit to the property sector.
That said, Evergrande&rsquo s debt woes and its aftermath may present opportunities to Singapore and Hong Kong property groups.
Armed with advantages in capital, track record and skill sets, property players from outside China enjoyed an edge in the later part of the last century and the early part of this century post China&rsquo s opening up of its economies in the late 1970s.
Malaysian tycoon Robert Kuok&rsquo s Kuok Group was involved in developing the landmark China World Trade Centre in Beijing&rsquo s Chaoyang district, where construction started in 1985.
Today, China World Trade Centre has around 1.1 million square metres of floor area with components such as hotels, malls, offices, apartments, convention rooms and an exhibition hall.
Hong Kong tycoon Vincent Lo&rsquo s Shui On Land is associated with the success of Shanghai Xintiandi, a redevelopment project, consisting of residential, office, retail, entertainment and cultural properties in the heart of the city.
Debt binge
In more recent times, Singapore and Hong Kong property groups, which tend to be conservatively geared, have likely found the going in China tougher.
Chinese groups such as Evergrande, helped by binging on debt, have grown enormously in scale.
With scale, these groups were competitive in attracting talent, and building relationships with local officials, suppliers, contractors and other service providers. Some Chinese parties became very aggressive in bidding for land, making it challenging for Singapore and Hong Kong groups to secure development sites.
Debt is both a friend and an enemy of a property developer. Taking on more debt allows a group to undertake more projects and potentially make larger profits. Monies can then be recycled into new projects thereby creating a virtuous cycle of growth.
However, Evergrande is not the first and nor will it be the last property developer for whom having trouble with servicing debt may be fatal.
City Developments Limited (CDL) recently faced major problems from its investment in a debt-laden China property group.
To scale up its presence in China, CDL took a stake in Sincere Property Group, which is based in Chongqing and headquartered in Shanghai, in 2019, and then announced its 51.01 per cent acquisition in Sincere in April 2020.
However, Sincere&rsquo s liquidity challenges mounted following China&rsquo s implementation of the &ldquo three red lines&rdquo policy to cap borrowings for property developers.
CDL announced in February that it had booked a S$1.78 billion impairment on its investment in Sincere for 2020, effectively writing down 93 per cent of its investment in Sincere.
In September, CDL announced its exit from Sincere by selling its effective interest in Sincere for US$1.
At the same time, CDL said it is raising its stake in a company that owns 65 per cent of Shenzhen Longgang Tusincere Tech Park (Shenzhen Tech Park) from 84.6 per cent to 100 per cent.
Long haul
It appears that while CDL has paid a hefty price for a mis-adventure in Sincere, the group is not shying away from the China market.
Singapore property groups look keen to stay the course and grow in China over the long haul.
The handling of Evergrande&rsquo s debt woes and the new landscape that arises in China&rsquo s property sector thereafter will be keenly watched.
Chinese developers may be much more lowly geared from here on.
Banks may become more cautious in lending to developers and owners of developers may be more careful in assuming debt as they focus on long-term sustainability of their businesses.
Opportunistic bargains could present themselves to well-capitalised groups including those from Singapore if debt-laden Chinese groups are in a hurry to sell assets to pare gearing.
Also, Singapore groups may see a landscape where Chinese parties are more circumspect in bidding for land and where local officials place greater emphasis on working with groups that have strong credit standing.
After confronting some short-term weakness in the Chinese property market, overseas groups, including Singapore players, may face somewhat more conservative Chinese competitors.
If developers here are well-positioned, that could make navigating a Chinese property landscape beset by digitalisation, a fight for common prosperity and ageing demographics, slightly easier ahead.
READ MORE:
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In the near term, Evergrande&rsquo s debt problems could adversely impact China&rsquo s property market as lenders tighten extending credit to the property sector.
That said, Evergrande&rsquo s debt woes and its aftermath may present opportunities to Singapore and Hong Kong property groups.
Armed with advantages in capital, track record and skill sets, property players from outside China enjoyed an edge in the later part of the last century and the early part of this century post China&rsquo s opening up of its economies in the late 1970s.
Malaysian tycoon Robert Kuok&rsquo s Kuok Group was involved in developing the landmark China World Trade Centre in Beijing&rsquo s Chaoyang district, where construction started in 1985.
Today, China World Trade Centre has around 1.1 million square metres of floor area with components such as hotels, malls, offices, apartments, convention rooms and an exhibition hall.
Hong Kong tycoon Vincent Lo&rsquo s Shui On Land is associated with the success of Shanghai Xintiandi, a redevelopment project, consisting of residential, office, retail, entertainment and cultural properties in the heart of the city.
Debt binge
In more recent times, Singapore and Hong Kong property groups, which tend to be conservatively geared, have likely found the going in China tougher.
Chinese groups such as Evergrande, helped by binging on debt, have grown enormously in scale.
With scale, these groups were competitive in attracting talent, and building relationships with local officials, suppliers, contractors and other service providers. Some Chinese parties became very aggressive in bidding for land, making it challenging for Singapore and Hong Kong groups to secure development sites.
Debt is both a friend and an enemy of a property developer. Taking on more debt allows a group to undertake more projects and potentially make larger profits. Monies can then be recycled into new projects thereby creating a virtuous cycle of growth.
However, Evergrande is not the first and nor will it be the last property developer for whom having trouble with servicing debt may be fatal.
City Developments Limited (CDL) recently faced major problems from its investment in a debt-laden China property group.
To scale up its presence in China, CDL took a stake in Sincere Property Group, which is based in Chongqing and headquartered in Shanghai, in 2019, and then announced its 51.01 per cent acquisition in Sincere in April 2020.
However, Sincere&rsquo s liquidity challenges mounted following China&rsquo s implementation of the &ldquo three red lines&rdquo policy to cap borrowings for property developers.
CDL announced in February that it had booked a S$1.78 billion impairment on its investment in Sincere for 2020, effectively writing down 93 per cent of its investment in Sincere.
In September, CDL announced its exit from Sincere by selling its effective interest in Sincere for US$1.
At the same time, CDL said it is raising its stake in a company that owns 65 per cent of Shenzhen Longgang Tusincere Tech Park (Shenzhen Tech Park) from 84.6 per cent to 100 per cent.
Long haul
It appears that while CDL has paid a hefty price for a mis-adventure in Sincere, the group is not shying away from the China market.
Singapore property groups look keen to stay the course and grow in China over the long haul.
The handling of Evergrande&rsquo s debt woes and the new landscape that arises in China&rsquo s property sector thereafter will be keenly watched.
Chinese developers may be much more lowly geared from here on.
Banks may become more cautious in lending to developers and owners of developers may be more careful in assuming debt as they focus on long-term sustainability of their businesses.
Opportunistic bargains could present themselves to well-capitalised groups including those from Singapore if debt-laden Chinese groups are in a hurry to sell assets to pare gearing.
Also, Singapore groups may see a landscape where Chinese parties are more circumspect in bidding for land and where local officials place greater emphasis on working with groups that have strong credit standing.
After confronting some short-term weakness in the Chinese property market, overseas groups, including Singapore players, may face somewhat more conservative Chinese competitors.
If developers here are well-positioned, that could make navigating a Chinese property landscape beset by digitalisation, a fight for common prosperity and ageing demographics, slightly easier ahead.
READ MORE:
- Shake-up of China' s property sector could deliver opportunities for CapitaLand
- Evergrande: China' s fragile housing giant teetering on the brink of bankruptcy
- Fall from grace: Evergrande' s debt journey since China' s ' three red lines' policy
- Evergrande
- China
- Singapore property
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FOUNDED in 1996 and listed in Hong Kong in 2009, Guangdong-based Evergrande Group rode China&rsquo s epic property boom and made its founder Xu Jiayin one of China&rsquo s richest men.
Evergrande has around 163,000 employees and its real estate footprint spans more than 280 cities in China.
But Evergrande is now faced with over US$300 billion in liabilities, hundreds of unfinished residential buildings, angry suppliers who have shut down construction sites, and furious homebuyers who have made down payments for stalled projects.
In its results announcement on August 31, Evergrande said &ldquo some payables related to property development were overdue, leading to the suspension of work on some projects&rdquo .
Earlier this week, the group said it has engaged advisers to examine its financial options and warned of default risks.
Large losses loom for banks, bondholders, suppliers and home buyers should Evergrande collapse.
Evergrande' s teeter may clear path for Singapore players in China
Singapore developers should be positioned for opportunistic bargains, amid a change in landscape in China that is turning conservative on debt
Wed, Sep 15, 2021 - 3:09 PM
UPDATED Wed, Sep 15, 2021 - 3:42 PM
The construction site of an Evergrande housing complex is seen in Zhumadian, central China&rsquo s Henan province on September 14, 2021.
PHOTO: AFP
Evergrande has around 163,000 employees and its real estate footprint spans more than 280 cities in China.
But Evergrande is now faced with over US$300 billion in liabilities, hundreds of unfinished residential buildings, angry suppliers who have shut down construction sites, and furious homebuyers who have made down payments for stalled projects.
Earlier this week, the group said it has engaged advisers to examine its financial options and warned of default risks.
Large losses loom for banks, bondholders, suppliers and home buyers should Evergrande collapse.