The real estate market in China is in freefall after Evergrande was ordered to liquidate by a court in Hong Kong after amassing 2.39 trillion yuan (or $333 billion for those of you who can’t convert yuan to U.S. dollars in their heads).
The liquidation order comes as the Chinese real estate firm and its overseas creditors failed to agree on how to restructure the company’s massive $33 billion in debt after having tried to negotiate over the last 19 months. The Shenzhen-based developer had already filed for bankruptcy in New York back in 2023.
So liquidation it is!
I can’t begin to explain how bad this is for China’s real estate market, but also for the investors outside of China who scooped up their debt obligations for pennies on the dollar in the belief that the Chinese government would never let Evergrande fail.
They hoped the Chinese would view Evergrande as China’s version of the United State’s banks that were too big to fail like Goldman Sachs and Morgan Stanley, but it turns out the Chinese thought Evergrande was more like Lehman Brothers, and they let it fail.
Now the Chinese real estate market will going through a period of constriction, and ultimately the market will right-size itself, but most likely at the expense of not only investors outside of China but also Chinese families who saved up and bought real estate from Evergrande that they will never be able to live in or sell.
Evergrande, symbol of China’s property crisis, heads to liquidation