BOFIT Viikkokatsaus / BOFIT Weekly Review 2015/03
For a company still renowned for healthy profitability six months ago to get into so much trouble so quickly raises a number of disturbing questions. Foremost is whether Kaisa’s problems merely reflect bad decisions on the part of a single private enterprise or are they symptomatic of deeper problems running throughout China’s real estate sector. Apartment prices continued to decline in December and during the holiday season around the turn of the year, sales volumes in large cities were less than half of what they were a year earlier. The slowdown in the housing market has hit highly leveraged builders particularly hard, and several developers encountered financial difficulties last year. Headlines reporting the resignations and arrests of leading figures in these enterprises hardly helped given widespread public suspicions of e.g. crooked land deals in the real estate sector.
Problems in China’s real estate sector have also shaken foreign investors. The Financial Times, based on information from Dealogic, estimated last autumn that the outstanding amount of foreign bonds of Chinese developers was nearly $60 billion, while syndicated loans amounted to about $40 billion. Foreign bonds of Kaisa Group Holdings alone amount to about $2.5 billion, and in the case of a bankruptcy the position of foreign creditors seems to be weak.