China’s real-estate industry is facing massive layoffs as property developers rack up debts at unprecedented levels and Beijing seeks to cool an overheating housing market.
Among domestic publicly listed real-estate companies, 136 have liabilities that top 10 trillion yuan (about $1.47 trillion) in total, China’s state-run newspaper Changjiang Times said in an article on Sept. 3, citing data from Wind, a Chinese information service company. Additionally, these companies have an average debt-to-asset ratio of over 80 percent.
In response to the heavy debt, many companies—including some of China’s biggest in the industry—have imposed a hiring freeze or started massive layoffs. Some of these companies include Vanke, which is based in the southern Chinese city of Shenzhen; Shanghai-based Greenland Holdings; Agile Property, which is based in Zhongshan, a city in southern China’s Guangdong Province; and R&F Properties, based in Guangzhou, another city in Guangdong, according to Changjiang Times.
Those four firms are ranked third, fourth, 17th, and 21st in terms of total housing sales in 2017, according to data provided by Leju Holdings, a real-estate services provider based in Beijing.
In late August, Chinese media widely reported that property developer CK Asset Holdings, which is owned by Hong Kong business magnate Li Ka-shing, announced layoffs for its Shanghai team.
Meanwhile, as domestic financial institutions have been reducing their balance sheets, real-estate companies in China are having a harder time getting loans, Chen Xin, a researcher with China’s state-run Shanghai Federation of Social Science Association, said in an interview with Changjiang Times. As for getting a loan outside of China, Chen added that a strong U.S. dollar makes such an option more costly.
In the first five months of this year, the Shanghai Stock Exchange suspended nine real-estate companies’ corporate bonds, worth a total of 48.4 billion yuan (about $7.09 billion), according to real-estate news website Mingtiandi. Last week, R&F Property saw 6 billion yuan (about $878 million) worth of corporate bonds terminated by the Shanghai exchange, according to Mingtiandi.
Investments that were originally going into China’s real-estate market are now going into the rental market instead, after Beijing has sought to prop up the latter since July 2017 as a countermeasure to cool the real-estate market.
Housing prices continue to skyrocket in China. According to data released by China’s National Bureau of Statistics on Aug. 15, 65 out of 70 mid- and large-sized cities saw prices in new housing increase in July, compared to a month earlier.
Zhang Hongwei, president of Tospur, a housing service and consulting firm based in Shanghai, said layoffs are just the beginning. He explained that there would be market adjustments starting with cities with high real-estate prices, before the changes are reflected in other first- and second-tier cities.