‘Ghost towns’: Evergrande crisis shines a light on China’s millions of empty homes
For weeks, the ailing Chinese real estate conglomerate has As China’s most indebted developer, Evergrande has become the poster child of unsustainable growth, with more than $300 billion worth of liabilities. However, “Evergrande is not the only one struggling,” noted Christina Zhu, an economist at Moody’s Analytics. Over the last few days, a slew of other developers have disclosed their own cash flow issues, asking lenders for more time to repay them or warning of potential defaults.In a recent report, Zhu wrote that 12 Chinese real estate firms defaulted on bond payments totaling about 19.2 billion yuan (nearly $3 billion) in the first half of the year.”This accounted for near 20% of total corporate bond defaults in the first six months of the year, the highest across all sectors” in mainland China, she added.span{color:#C5C5C5;}
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CNN’s Andrew Stevens walking down an empty highway at rush hour in Shenfu, one of China’s so-called “ghost towns,” in 2016.
The pandemic brought activity to a temporary standstill. But construction later roared back to life as China reopened, and the country’s property market enjoyed a brief rebound.Since then, however, the market has sputtered again. And there’s no sign of immediate relief.Over the last few months, “measures of price growth, housing [construction] starts and sales” have tapered off considerably, Zhu noted. In August, property sales, as measured by floor space sold, dropped 18% compared to the same time the previous year, she added. That same month, new home prices edged up 3.5% “from a year earlier, the smallest growth since the property market rebounded from the pandemic fallout in June 2020,” wrote Zhu.It’s true that not all real estate companies are in dire straits. While some players are clearly struggling, “most developers are not on the brink of default,” according to Julian Evans-Pritchard, a senior China economist at Capital Economics. “With a couple of exceptions, most major developers are in a much stronger financial position than Evergrande and should be able to weather a temporary spike in their borrowing costs amid contagion fears,” he said in a note to clients. That should provide some reassurance “amid the current market jitters,” at least in the short term, he added. But in the long run, it may matter little.”Successfully navigating the structural decline in housing demand over the coming decade will prove more challenging,” wrote Evans-Pritchard. “A drawn-out consolidation of the sector over many years seems more likely than an imminent wave of developer failures.”— CNN’s Beijing bureau contributed to this article.
