Another Chinese Developer Runs Into Debt Problems

By Franco Faraudo

China’s property industry has been a main concern for those monitoring the status of the world’s second-largest economy. And even though the International Monetary Fund has upgraded China’s growth forecast, it still warns that the real estate sector is still a threat to those growth targets. The real estate crisis has already had a few high-profile casualties including Evergrande last year followed by one of the biggest Chinese home builders Country Garden just a few months ago. Now another large developer called China Vanke is struggling to pay its debts, leading many wondering if more will soon follow.

China Vanke is one of the oldest and largest real estate companies in the country and the second-largest homebuyer by sales. It made headlines back in 2015 due to a prolonged hostile takeover bid by its rivals Baoneng Group and Evergrande. Both companies bought up stock in the company in an attempt to gain controlling interest. Eventually, regulators stepped in to stop the takeover. The result included disciplinary action for Evergrade and Baoneng, a change to the country’s rules around leveraged buyouts, and an eventual investment in Vanke by the state-owned organization Shenzhen Metro.

This investment by the state might be the very thing that saves the company in the end. Unlike some of the other real estate companies that have gotten into financial trouble, the Chinese government, through Shenzhen Metro, has decided to step in and shore up the company’s finances to ensure it continues operations. This same kind of treatment is not likely for other Chinese property companies that are not at least partially state-owned.

Other news:

Estate Sale: Bad news for one company can be good news for another. WeWork’s older rival, IWG (owner of the Regus brand), is reportedly acquiring some of WeWork’s locations. IWG has a number of brands, including Spaces and HQ, so it will be interesting to see which ones it rolls out onto the old WeWork locations.

Emperor’s New Clothes: The Saudi monarchy has identified real estate technology as one of the industries it will support as a way to transition away from its dependence on oil. The government is working on legislation that would attract new investors and has created a registry platform which, while short on details, is supposed to “enhance trust and transparency in the real estate sector and achieve the goals of Saudi Vision 2030 in developing real estate wealth.”

Lend-less: The Mortgage Bankers Association just released its third-quarter report, and it’s bad. We all have gotten a sense that lending is down, but according to their numbers, lending across all property types and capital sources is down an average of 49 percent from a year ago.

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