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China property giant defaults on debt, 'symptomatic of country's debt buildup'

9 December 2021 8:52 PM
Tags:
China
Fitch
The Money Show
Bruce Whitfield
John Loos
Evergrande
building boom
ghost cities
debt default

Africa Melane discusses China's building boom and ghost cities with John Loos, Property Economist at FNB.

A sense of disbelief greeted the news that Chinese property giant Evergrande had defaulted on an interest payment to international investors.

The company's known for having borrowed more than $300bn in an aggressive expansion drive.

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Evergrande had been due to repay interest on about $1.2bn of international loans on Monday, reports the BBC.

Ratings agency Fitch has now declared Evergrande in default.

Africa Melane (in for Bruce Whitfield) interviews John Loos, Property Economist at First National Bank (FNB).

Loose says defaulting for such a big company already causes ripples, but one has to look at what it is symptomatic of, as borne out by reports of a real estate housing bubble in China.

Other companies [and individuals], along with Evergrande, have probably racked up debt, typically in bubbles... You've seen a lot of over-investment, by the sound of it, in China's housing market and a lot of over-building to the extent that there's even talk of ghost cities.

John Loos, Property Economist - FNB

It might sound to South Africa like a nice problem to have, but you've got cities standing empty and estimates anywhere up to 20% vacancy rate in all residential properties in China...

John Loos, Property Economist - FNB

Households have ploughed a lot of their savings into investing into the real estate sector and now you've got something that's not really productive... You've got got a lot of properties there that perhaps aren't earning rental income or housing people... Now you get the default on the debt because the debt burden has become too much...

John Loos, Property Economist - FNB

The lenders are going to be hesitant to lend, so those companies are going to have to scale back and that goes right through the real estate and construction sector.... The problem with that is that China's real estate and construction sector, I've heard estimates anywhere from 25-30% of China's GDP...

John Loos, Property Economist - FNB

An economy that suffers and goes into recession will have a huge impact on the many countries dependent on China through imports and exports, Loos says.

The potential impact on a country like South Africa would be via our exports, where we export raw materials of some nature to China... which could go into a recession as a result of a property and construction sector coming under pressure.

John Loos, Property Economist - FNB

Listen to Loos' perspective in the audio clip below:


This article first appeared on CapeTalk : China property giant defaults on debt, 'symptomatic of country's debt buildup'




9 December 2021 8:52 PM
Tags:
China
Fitch
The Money Show
Bruce Whitfield
John Loos
Evergrande
building boom
ghost cities
debt default

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