Chinese real estate enterprises are at risk of falling into financial red alert, losing liquidity is only a matter of time.

The total assets of China's largest real estate companies would fall below their total liabilities if the value of their unfinished properties fell by about 30%.

Các công ty bất động sản Trung Quốc đối mặt nguy cơ mất khả năng thanh toán

Chinese real estate businesses are in crisis as house prices fall. (Source: Reuters)

China's top 10 property developers by revenue, plus the restructuring Evergrande Group, had total assets under development worth 6.35 trillion yuan ($875 billion) as of the end of June 2023.

The list of these assets includes land that companies have rights to use and apartments that are still under construction.

Real estate developers buy land through auctions or purchase agreements, then hire construction companies to build houses.

These properties remain owned by the developers until the completed apartments are handed over to buyers, leaving the developers at risk of losses if housing prices temporarily fall.

The total assets on the balance sheet of the 11 real estate developers as of June 2023 were around 12.33 trillion yuan, while liabilities were 10.34 trillion yuan, resulting in a total capital of 1.99 trillion yuan.

Real estate under construction accounts for about 50% of these developers’ total assets. If the value of unfinished real estate falls by 32%, the liabilities will exceed the value of the assets, putting all 11 developers in the financial red.

The troubled Evergrande accounts for the largest portion of these assets, at 1.09 trillion yuan. The decline in the value of Evergrande’s unfinished properties by 373.6 billion yuan in 2021, 1.6 billion yuan in 2022 and 2.1 billion yuan in the first half of 2023 was the biggest factor in the net loss of 614.9 billion yuan over those two and a half years. As of June 2023, Evergrande’s asset value was negative 644.2 billion yuan.

Although Country Garden Holdings, China’s largest property developer, currently has assets worth 254.4 billion yuan more than its liabilities as of the end of June 2023, the assets under development are worth more than three times that amount, putting the company at risk if they lose value.

Both Evergrande and Country Garden reported net losses in the first half of 2023. Four other top property developers, including state-backed China Vanke and Greenland Holdings, saw net profits decline.

However, profits rose at the remaining five companies, including state-owned Poly Developments and Holdings Group.

Source