In Evergrande’s backyard, estate agents try to stay optimistic

SHENZHEN – China Evergrande’s financial woes are being felt in the real estate developer’s backyard as sales agents and homebuyers face uncertainty in an industry that has been one of the biggest drivers. important to economic growth.

Realtors in southeast China’s Shenzhen city say they’ve seen a marked slowdown in recent weeks as Evergrande’s non-compliance with its debts grabbed headlines and government restrictions aimed at chilling the market continue to weigh. The sense of market weakness has spread to the larger province of Guangdong which is home to the other members of the three big Chinese developers, Country Garden and Vanke.

There were no clients on a recent visit to an office of Leyoujia, one of Shenzhen’s top real estate agents, in Longhua District last week. The office was surrounded by both completed residential towers and others under construction.

“Customer inquiries have been calmer compared to the same period last year, possibly due to the Evergrande issue and other negative reports in the real estate market,” said a member of the sales staff.

“Homebuyers are probably taking a wait-and-see attitude as the government appears to step in to keep the market stable.”

The trajectory of the Chinese housing market has become a global focus of attention as Evergrande, the world’s most indebted real estate developer, has failed to pay bond coupons to international investors, contractors’ bills and customer repayment requests. wealth management. Beijing has injected liquidity into the banking system to reduce the risk of contagion as Evergrande struggles to settle its $ 300 billion in liabilities. But a decline in the value of the underlying real estate market could trigger much broader problems across the financial system.

Another Shenzhen developer, Fantasia, said this week that he too had missed a bond repayment.

Even before the failures, the local market had been affected by a series of measures to curb rising house prices in Shenzhen, also known for the concentration of tech companies such as Huawei and Tencent. These measures include a selling price limit on residential homes introduced by local authorities to cool speculative activity.

Inspired by President Xi Jinping, who has repeatedly stated that the houses are for living and not for speculation, authorities also require that only residents of Shenzhen who hold a residence permit and have contributed to the social security for three years be allowed to buy houses there.

Guangdong’s real estate investments have fallen sharply since the start of the year. The figures – a combination of construction spending and residential and commercial sales – show that investment was 37% higher than the previous year in January and February, but the cumulative total for the January-August period did not. increased by 7.8%, implying a contraction in recent months and falling below the national average.

Indications are that September was even worse as the Evergrande crisis unfolded. CCB International analysts, citing national data from China Real Estate Information Corporation on contract sales from the biggest developers, said it was “possibly the worst September sales in 20 years.” Domestic sales of Vanke and Country Garden fell about a third year-on-year last month, they said.

In Shenzhen, a straw poll of downtown agents suggested that house prices in new developments had fallen between 5% and 10% in recent months, but they predicted that the decrease in demand would be at short term.

“Home prices are very low now, compared to last year, thanks to government measures,” said a salesperson at an office in Lianjia, China’s largest real estate broker. “In fact, we have seen buyer interest return these days after Evergrande’s statements to reassure the market.”

But while agents are bullish, buyers have mixed reviews.

“Ten percent cheaper is still beyond my reach,” said Shi Yong, an accountant in Shenzhen who has given up hope of owning an apartment.

Some real estate investors like Rebecca Hu fear that the government’s price cuts could affect the value of her new apartment in Zhongshan, a city about 100 km west of Shenzhen. Hu and his four colleagues working at a five-star hotel in Shenzhen put their savings and invested this year in a waterfront apartment worth 2.4 million yuan ($ 372,000).

“The seller said the value will double in three years and our intention is to make it profitable,” Hu said.

His apartment on Zhongshan Ma’an Island is connected to Qianhai by a 24 km bridge under construction. Qianhai is Shenzhen’s latest economic zone in Beijing’s Greater Bay Area to drive growth in Guangdong, Hong Kong and Macao.

The developer of the apartment, the Chinese group Poly, sells the project under the slogan “Live in Ma’an, work in Qianhai”, attracting white-collar buyers like Hu from dear Shenzhen. A similar unit in Shenzhen would cost more than double the price.

With the country’s post-pandemic recovery showing some tension – from falling retail sales to shrinking manufacturing – and the Evergrande debacle underway, Hu was not convinced of a sustained price increase of real estate.

“We may have to wait longer than originally planned to achieve our expected return on investment,” she said. “And that is based on the fact that we could still keep our current job to pay off our mortgage.”

Tommy Wu, chief economist at Oxford Economics in Hong Kong, said China’s real estate outlook would be bleak for the rest of the year and into next year, weighed down by Evergrande’s problems.

“In addition, the risk of a more marked slowdown in real estate activity cannot be ruled out, especially at a time when China’s economic momentum is slowing after last year’s strong recovery,” Wu wrote in a commentary. recent research note.

Some economists, including those at Citi Research, expect Evergrande to undergo a managed restructuring.

“The failure of Evergrande and the government’s response is evolving in real time,” wrote the Citi team in Hong Kong led by Yu Xiangrong. “Considerable uncertainty remains as to where the resolution falls in the spectrum between bailout and collapse.”

Whether through policy measures or direct intervention in Evergrande, players in the Shenzhen real estate market expect Beijing to continue stabilizing the market in the near term.

“There will be a fluctuation in house prices but it will not be large enough to cause the bubble to burst,” Leyoujia’s agent said. “After all, this is the buyer’s hard earned savings and the government is unlikely to allow that to happen.”