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China Evergrande, Enormous Real Estate Corporation, Submits U.S. Bankruptcy FilingChina Evergrande, Enormous Real Estate Corporation, Submits U.S. Bankruptcy Filing

China Evergrande, Enormous Real Estate Corporation, Submits U.S. Bankruptcy Filing

Publish – 19 aug , 2023

 

In a significant turn of events, China’s colossal property enterprise, China Evergrande, has filed for bankruptcy protection, more than two years after its initial debt default. This pivotal move was accompanied by the subsequent defaults of smaller developers, marking the onset of a gradual decline in China’s real estate domain that now poses a substantial threat to the nation’s overall economy. Another major player in the industry, Country Garden, is grappling with its own impending default after failing to meet payment obligations to creditors and accumulating an outstanding debt of $200 billion.

China Evergrande’s application for bankruptcy protection was lodged with the United States bankruptcy court located in the Southern District of New York. The company is concurrently engaged in efforts to negotiate its colossal debt load. By the close of the previous year, Evergrande’s reported liabilities had reached a staggering sum of $335 billion.

The corporation, in conjunction with its affiliates that possess assets in the United States, is actively in discussions with creditors situated in Hong Kong and the British Virgin Islands. In a statement issued on Friday, the company affirmed its commitment to proceed with the planned offshore debt restructuring and is now in pursuit of endorsement from the U.S. court.

This ongoing negotiation between Evergrande and its creditors illustrates the gradual unfolding crisis confronting China’s real estate market.

Once a prime avenue for countless Chinese individuals to amass wealth, the housing sector has witnessed a notable shift due to a change in government policy several years ago aimed at tempering the property market’s fervor. China’s paramount leader, Xi Jinping, directed that homes should primarily serve as dwellings rather than speculative assets. Subsequently, in 2020, the government took stern measures to curb excessive borrowing, thereby restricting real estate companies’ ability to raise funds and triggering a sequence of defaults.

This policy transformation marked a significant shift for a housing market that had long paralleled China’s ascent as a global economic force, albeit marred by overzealous construction and precarious financial practices.

China Evergrande, Enormous Real Estate Corporation, Submits U.S. Bankruptcy Filing
(Image: Reuters)

China Evergrande, Enormous Real Estate Corporation, Submits U.S. Bankruptcy Filing

Prior to completion of construction, prospective homebuyers often secured mortgages to acquire apartments, serving as a consistent revenue source for developers, enabling them to fund operations and the construction of additional homes. As the market’s pace decelerated, consumers found themselves burdened with debt while lacking the homes they had anticipated.

By the conclusion of the previous year, Evergrande had pre-sold an astounding 720,000 apartments that remained unfinished, as reported by Gavekal Dragonomics, a research entity.

In conjunction with the housing market’s troubles, China’s overall economy, the second-largest globally, is grappling with a challenging recovery following three years of rigorous “zero Covid” measures. These measures have left companies cautious about hiring, consumers hesitant to spend, stock markets in turmoil, and potential homeowners cautious about property acquisition.

Analysts from Nomura recently noted, “China’s real estate sector is undergoing an unparalleled correction.”

Adding to these challenges, Country Garden, which has indicated potential losses of up to $7.6 billion in the first half of this year, has yet to complete nearly a million apartments spread across numerous cities in China, according to one estimation.

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