As of the end of March, a number of real estate companies in China have announced that they will postpone the release of their 2021 annual results and therefore cease trading in their shares as of April 1. Experts believe that the downward trend of China's real estate market will exacerbate financial pressure on the regime as well as bank loan repayment risks.
Leading real estate companies such as Sunac China (01918.HK) and Fantasia Holdings (01777.HK), which said it would "not lie flat," announced that they would postpone the release of their 2021 results. On March 28, Sunac China Holdings Ltd. announced that it would not publish its 2021 unaudited annual results and would publish its audited 2021 results "as soon as practicable." Sunac China's reasons for the delay include the uncertainty arising from the extension of domestic public debt. A debt rollover is an agreement between a debtor and a creditor to postpone the payment date of a debt claim as it becomes due.
On March 29, Fantasia Holdings Group Ltd. also announced a delay in the release of its 2021 annual earnings announcement. The reasons cited by Fantasia include the recent turnover of staff in the finance department and the impact of the COVID-19 pandemic in China. On March 31, Shimao Group Holdings Ltd. (00813.HK) also announced a delay in the release of its unaudited annual results for 2021.
China Evergrande Group (0333.HK) and Kaisa Group Holdings Ltd. (01638.HK) announced on March 22 that they would postpone the release of their 2021 results.
On March 31, Albert Song, a researcher at Tianjun, a political and economic think tank, told The Epoch Times that the Chinese Communist Party's policy adjustments in the past few years have caused problems in China's property market as a whole; the industry is currently on the downside and financing channels are narrow, so some real estate companies are unable to deliver. Mr. Song has 27 years of experience working in China's financial industry and specializes in researching China's political and economic affairs.
The delay in the release of the annual reports has many negative effects, including that investors may begin to doubt the operations, financial management, and financial planning, as well as the disclosure and liquidity of the company. In addition, rating agencies may downgrade a company's credit rating, making it difficult to issue subsequent bonds.
The downturn in China's real estate market is bound to impact the Chinese economy. It directly affects more than 40 enterprises associated with it, so its movement will lead to changes in the industry.
Ni Hong, Vice Minister of the Ministry of Housing and Urban-Rural Development (MOHURD) of the Chinese Communist Party, said at a press conference on Feb. 24 that the risk of late delivery of property projects by real estate enterprises due to debt defaults should be dealt with, i.e. "guaranteeing the delivery of buildings."
The real estate industry involves a number of interested parties. The decline of the industry leads to a significant decrease in local government land transfer tax revenue, developers defaulting, and homebuyers losing faith in the industry, which affects the banks. Property project failures also trigger social unrest. "The Ministry of Housing and Urban-Rural Development's proposal of 'guaranteeing the delivery of buildings' is to avoid triggering social unrest," said Mr. Zhang.
Mr. Song agreed, saying the Ministry of Housing and Urban-Rural Development's proposal of "guaranteeing the delivery of buildings" is to avoid social unrest."
Real estate is a high turnover industry that requires rapid capital flow, including land acquisition, development, pre-sales, and then mortgages and loans, and if anything goes wrong, the capital chain will be very tight. Although the Chinese regime has recently announced some policies to stabilize the housing market, it mainly relaxed the purchase restrictions for home buyers.
For real estate companies, the Chinese regime has also relaxed some policies, but it is not very stimulating in nature and will not produce immediate benefits.
Public information shows that China's housing inventory is saturated.
According to an article published by the Chinese online media Kaiwei Finance in March 2019, there are enough properties built to house 3.4 billion people in China, while the population of China is less than 1.4 billion at most. Because of the oversupply of housing, some places have become so-called "ghost cities"—dark at night, with no one living there.