Read on Twitter
1/7
Very good article about China’s debt-real estate nexus. The problem with Beijing’s “three red lines” response to excessive leverage in the property sector is that developers can only deleverage if real estate prices remain high enough to allow... https://www.ft.com/content/c1144ffe-30f9-41d3-b033-bb82eca258b4
Very good article about China’s debt-real estate nexus. The problem with Beijing’s “three red lines” response to excessive leverage in the property sector is that developers can only deleverage if real estate prices remain high enough to allow... https://www.ft.com/content/c1144ffe-30f9-41d3-b033-bb82eca258b4
2/7
them to liquidate assets and pay down debt without taking losses. If they take losses, their debt burdens get worse, not better.
If real estate prices mainly reflected underlying economic value, it would be possible to do so, but with among the most expensive real estate...
them to liquidate assets and pay down debt without taking losses. If they take losses, their debt burdens get worse, not better.
If real estate prices mainly reflected underlying economic value, it would be possible to do so, but with among the most expensive real estate...
3/7
markets in the world (relative to per capita income), the lowest rental yields in the world, and by far the largest share of empty apartments and office space in the world, it is pretty clear that the Chinese real estate market is highly speculative.
markets in the world (relative to per capita income), the lowest rental yields in the world, and by far the largest share of empty apartments and office space in the world, it is pretty clear that the Chinese real estate market is highly speculative.
4/7
In speculative markets rising debt is justified by rising prices, which are themselves supported by rising debt. It is a highly self-reinforcing process, both on the way up and on the way down, which means the longer it goes on, the more painful the adjustment.
In speculative markets rising debt is justified by rising prices, which are themselves supported by rising debt. It is a highly self-reinforcing process, both on the way up and on the way down, which means the longer it goes on, the more painful the adjustment.
5/7
Of course it also means that the only way real estate developers can deleverage is if some other sector leverages up, and there are really only two sectors that can do so. The first is households, but given their already-high debt levels relative to income, it is probably...
Of course it also means that the only way real estate developers can deleverage is if some other sector leverages up, and there are really only two sectors that can do so. The first is households, but given their already-high debt levels relative to income, it is probably...
6/7
too risky to encourage more household debt, especially when they already seem worried about debt levels. The second is local governments, either directly (which is unlikely), or indirectly, by being forced to absorb the losses of real estate developers.
too risky to encourage more household debt, especially when they already seem worried about debt levels. The second is local governments, either directly (which is unlikely), or indirectly, by being forced to absorb the losses of real estate developers.
7/7
I suspect that the regulators are trying to engineer a slow bailing out of the developers so as not to set off a panic, but the longer they take, the more costly it will ultimately be. The debts of Evergrande alone must be terrifying to them.
I suspect that the regulators are trying to engineer a slow bailing out of the developers so as not to set off a panic, but the longer they take, the more costly it will ultimately be. The debts of Evergrande alone must be terrifying to them.
