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China’s Biggest Homebuilder Fights to Survive as Economic Crisis Deepens

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Once considered a survivor of China’s real estate turmoil, Country Garden is now at the center of the crisis and threatens the broader economy.

When Country Garden, the biggest developer in China’s increasingly troubled real estate sector, published its annual report in April, the cover design exuded hope: a phoenix spreading its wings.

The company said the image showed that China’s economy was “back on track” and that this year would see “growth soaring to new heights.”

That was wishful thinking.

Shortly after the report’s release, China’s nascent economic recovery lost steam and an already sluggish real estate market started to collapse. At Country Garden, presales of unfinished apartments, a crucial indicator of future revenue, plunged more than 50 percent in June and July, twice the rate of decline in the preceding five months.

For the past three years, as dozens of major property developers defaulted after years of excessive borrowing, Country Garden was an outlier. But last month, it missed two interest payments — signaling that it, too, was at risk of financial collapse, with $187 billion in debt.

Country Garden has staved off an immediate crash. It told creditors on Tuesday that it made the interest payments of $22.5 million within the grace period before default. On Friday, the company won a last-minute approval from creditors to postpone repayment of $537 million in yuan-denominated bonds, originally due on Monday, until 2026, according to documents shared by Country Garden.

Last week, after reporting a $7.1 billion loss for the first six months of 2023, Country Garden said there were “material uncertainties which may cast significant doubt” on its ability to avoid bankruptcy. The company is scrambling to raise cash and keep its creditors at bay, selling off stakes in properties and issuing shares at a discount.

It has been a dramatic fall for Country Garden. The company’s improbable rise, from a regional homebuilder to a nationwide behemoth, tracked China’s own meteoric ascent. Now, its collapse reflects the speed and severity of the country’s real estate meltdown, which threatens to derail the broader economy.

Country Garden’s City Mansions project, where construction has been very quiet, in Nantong.Qilai Shen for The New York Times

“As giant as Country Garden is, it’s a canary in the coal mine,” said Kenneth Rogoff, a Harvard University economics professor, who has written extensively about China.

To bolster the teetering real estate market, China’s financial regulators on Thursday rolled out a series of measures, including lower minimum down payments for first-time buyers and a reduction in interest rates on existing mortgages.

These and previous measures may not be enough to save Country Garden, which is struggling to pay its debts.

Many Country Garden bonds trade for pennies on the dollar, suggesting that lenders have low hopes of getting repaid. And the company’s share price is now below 1 Hong Kong dollar, a precipitous fall for what was once one of China’s largest private companies, whose stock traded above 17 Hong Kong dollars five years ago.

Country Garden was founded by Yang Guoqiang, a former farmer and construction worker who was raised in such dire poverty that, according to a profile on a government website, he didn’t wear shoes for the first 17 years of his life and he almost dropped out of school because he couldn’t afford the $1 tuition.

The company started developing properties in 1997, around the time that China began to change the rules for private ownership of real estate. When it went public in 2007, the company told investors that one of its strengths was a large reserve of low-cost land to develop. It also said it could build faster and cheaper than competitors.

Yang Huiyan, center, the chair of Country Garden. When the company went public in 2007, it made her the richest woman in China at the time.Imaginechina Limited, via Alamy Stock Photo

Two years before the public offering, Mr. Yang transferred his 70 percent stake to his second daughter, Yang Huiyan, who was then a manager in the company’s procurement department. When Country Garden’s stock listed, the 25-year-old Ms. Yang became the richest woman in Asia, with a fortune eventually estimated as high as $29 billion. Ms. Yang, who was co-chair with her father until this March, when she assumed the position exclusively, remains Country Garden’s majority shareholder.

Country Garden expanded rapidly, moving in lock step with the government’s urbanization push. It branched out beyond its home province of Guangdong and pushed aggressively into China’s lesser developed third- and fourth-tier cities, benefiting from a boom after 2015 when China, as part of a national “shantytown redevelopment” plan, started paying residents cash to trade in dilapidated shacks in smaller cities and towns.

The company succeeded with a high turnover strategy: build fast, sell fast and cash out fast. This allowed Country Garden to sell cheaper homes while still reaping larger profits than rivals. As real estate became the backbone of China’s economy and the main investment for many Chinese households, Country Garden emerged as one of the country’s largest companies that wasn’t state-owned.

Country Garden has sold more homes than any developer over the past six years, by appealing to buyers like Zhou Qizhou.

In 2019, he bought a Country Garden apartment in Enshi, a smaller city in central China. Although Mr. Zhou was working in Shanghai, he felt pressure to buy a home in case he couldn’t afford one later. He purchased a 115-square-meter (about 1,200 square feet) apartment for around $125,000, impressed by the construction speed and low price, even though he described the construction quality as so-so. He only regrets that he bought right before the market softened.

“At the end of the day, Country Garden is still a big brand,” Mr. Zhou said.

Visitors at the sales office at Country Garden’s Ten Mile Bay project.Qilai Shen for The New York Times

But the once-insatiable demand for real estate has evaporated and China’s economy is floundering. Companies like Country Garden have been strained by the effects of the crippling Covid lockdowns, a government crackdown on reckless borrowing by property developers and years of prioritizing state-owned businesses over private enterprises. The economic downturn has been more severe in smaller cities, where the local economies did not kept pace with the building boom. Now those cities are awash in empty apartments.

When Country Garden recently revealed its enormous first-half loss, it said it had “failed to grasp the potential risks associated with its disproportionately large investment” in smaller cities.

Until recently, Country Garden had been hailed as a survivor of the industry turmoil. While Beijing did little to backstop other major home builders, including Evergrande, the now bankrupt property developer that once rivaled Country Garden for market supremacy, the government has displayed a greater willingness to support the firm.

When China’s financial regulators issued a 16-point guide in November to aid the property industry, Country Garden was placed on a “white list” of quality developers to prioritize for financial aid and credit lines from state-owned banks, according to Chinese media reports.

For years, Country Garden has maintained close ties with the ruling Communist Party. Mr. Yang, its founder, served on the Chinese People’s Political Consultative Conference, a national political advisory body. Country Garden proactively supported policy initiatives like the distribution of sewing machines and farm equipment in poor areas under the banner of “poverty alleviation.”

Even as Country Garden’s finances have deteriorated, it has prioritized the wishes of policymakers by completing the construction of presold homes. It finished nearly 700,000 presold units last year and another 278,000 units in the first half of this year.

Partially constructed buildings, a part of Country Garden’s Ten Mile Bay project.Qilai Shen for The New York Times

Even so, in its latest earnings report Country Garden said it was focusing on improving its cash flow and cutting costs. It now employs about 58,000 people, fewer than half the full-time staff it had in 2018. The company declined to provide additional comment beyond its public announcements.

In the earnings report, the company said it was “deeply remorseful” about its current predicament, but added that it “will never succumb to passive defeatism.” When Mr. Yang addressed employees at a company meeting early this year, he urged perseverance.

“Do not fall down before dawn,” he said, according to the company’s WeChat account. “We must live till spring comes, and spring will surely come.”

 

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Here are some facts about British Columbia’s housing market

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Housing affordability is a key issue in the provincial election campaign in British Columbia, particularly in major centres.

Here are some statistics about housing in B.C. from the Canada Mortgage and Housing Corporation’s 2024 Rental Market Report, issued in January, and the B.C. Real Estate Association’s August 2024 report.

Average residential home price in B.C.: $938,500

Average price in greater Vancouver (2024 year to date): $1,304,438

Average price in greater Victoria (2024 year to date): $979,103

Average price in the Okanagan (2024 year to date): $748,015

Average two-bedroom purpose-built rental in Vancouver: $2,181

Average two-bedroom purpose-built rental in Victoria: $1,839

Average two-bedroom purpose-built rental in Canada: $1,359

Rental vacancy rate in Vancouver: 0.9 per cent

How much more do new renters in Vancouver pay compared with renters who have occupied their home for at least a year: 27 per cent

This report by The Canadian Press was first published Oct. 17, 2024.

The Canadian Press. All rights reserved.

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B.C. voters face atmospheric river with heavy rain, high winds on election day

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VANCOUVER – Voters along the south coast of British Columbia who have not cast their ballots yet will have to contend with heavy rain and high winds from an incoming atmospheric river weather system on election day.

Environment Canada says the weather system will bring prolonged heavy rain to Metro Vancouver, the Sunshine Coast, Fraser Valley, Howe Sound, Whistler and Vancouver Island starting Friday.

The agency says strong winds with gusts up to 80 kilometres an hour will also develop on Saturday — the day thousands are expected to go to the polls across B.C. — in parts of Vancouver Island and Metro Vancouver.

Wednesday was the last day for advance voting, which started on Oct. 10.

More than 180,000 voters cast their votes Wednesday — the most ever on an advance voting day in B.C., beating the record set just days earlier on Oct. 10 of more than 170,000 votes.

Environment Canada says voters in the area of the atmospheric river can expect around 70 millimetres of precipitation generally and up to 100 millimetres along the coastal mountains, while parts of Vancouver Island could see as much as 200 millimetres of rainfall for the weekend.

An atmospheric river system in November 2021 created severe flooding and landslides that at one point severed most rail links between Vancouver’s port and the rest of Canada while inundating communities in the Fraser Valley and B.C. Interior.

This report by The Canadian Press was first published Oct. 17, 2024.

The Canadian Press. All rights reserved.

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No shortage when it comes to B.C. housing policies, as Eby, Rustad offer clear choice

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British Columbia voters face no shortage of policies when it comes to tackling the province’s housing woes in the run-up to Saturday’s election, with a clear choice for the next government’s approach.

David Eby’s New Democrats say the housing market on its own will not deliver the homes people need, while B.C. Conservative Leader John Rustad saysgovernment is part of the problem and B.C. needs to “unleash” the potential of the private sector.

But Andy Yan, director of the City Program at Simon Fraser University, said the “punchline” was that neither would have a hand in regulating interest rates, the “giant X-factor” in housing affordability.

“The one policy that controls it all just happens to be a policy that the province, whoever wins, has absolutely no control over,” said Yan, who made a name for himself scrutinizing B.C.’s chronic affordability problems.

Some metrics have shown those problems easing, with Eby pointing to what he said was a seven per cent drop in rent prices in Vancouver.

But Statistics Canada says 2021 census data shows that 25.5 per cent of B.C. households were paying at least 30 per cent of their income on shelter costs, the worst for any province or territory.

Yan said government had “access to a few levers” aimed at boosting housing affordability, and Eby has been pulling several.

Yet a host of other factors are at play, rates in particular, Yan said.

“This is what makes housing so frustrating, right? It takes time. It takes decades through which solutions and policies play out,” Yan said.

Rustad, meanwhile, is running on a “deregulation” platform.

He has pledged to scrap key NDP housing initiatives, including the speculation and vacancy tax, restrictions on short-term rentals,and legislation aimed at boosting small-scale density in single-family neighbourhoods.

Green Leader Sonia Furstenau, meanwhile, says “commodification” of housing by large investors is a major factor driving up costs, and her party would prioritize people most vulnerable in the housing market.

Yan said it was too soon to fully assess the impact of the NDP government’s housing measures, but there was a risk housing challenges could get worse if certain safeguards were removed, such as policies that preserve existing rental homes.

If interest rates were to drop, spurring a surge of redevelopment, Yan said the new homes with higher rents could wipe the older, cheaper units off the map.

“There is this element of change and redevelopment that needs to occur as a city grows, yet the loss of that stock is part of really, the ongoing challenges,” Yan said.

Given the external forces buffeting the housing market, Yan said the question before voters this month was more about “narrative” than numbers.

“Who do you believe will deliver a better tomorrow?”

Yan said the market has limits, and governments play an important role in providing safeguards for those most vulnerable.

The market “won’t by itself deal with their housing needs,” Yan said, especially given what he described as B.C.’s “30-year deficit of non-market housing.”

IS HOUSING THE ‘GOVERNMENT’S JOB’?

Craig Jones, associate director of the Housing Research Collaborative at the University of British Columbia, echoed Yan, saying people are in “housing distress” and in urgent need of help in the form of social or non-market housing.

“The amount of housing that it’s going to take through straight-up supply to arrive at affordability, it’s more than the system can actually produce,” he said.

Among the three leaders, Yan said it was Furstenau who had focused on the role of the “financialization” of housing, or large investors using housing for profit.

“It really squeezes renters,” he said of the trend. “It captures those units that would ordinarily become affordable and moves (them) into an investment product.”

The Greens’ platform includes a pledge to advocate for federal legislation banning the sale of residential units toreal estate investment trusts, known as REITs.

The party has also proposed a two per cent tax on homes valued at $3 million or higher, while committing $1.5 billion to build 26,000 non-market units each year.

Eby’s NDP government has enacted a suite of policies aimed at speeding up the development and availability of middle-income housing and affordable rentals.

They include the Rental Protection Fund, which Jones described as a “cutting-edge” policy. The $500-million fund enables non-profit organizations to purchase and manage existing rental buildings with the goal of preserving their affordability.

Another flagship NDP housing initiative, dubbed BC Builds, uses $2 billion in government financingto offer low-interest loans for the development of rental buildings on low-cost, underutilized land. Under the program, operators must offer at least 20 per cent of their units at 20 per cent below the market value.

Ravi Kahlon, the NDP candidate for Delta North who serves as Eby’s housing minister,said BC Builds was designed to navigate “huge headwinds” in housing development, including high interest rates, global inflation and the cost of land.

Boosting supply is one piece of the larger housing puzzle, Kahlon said in an interview before the start of the election campaign.

“We also need governments to invest and … come up with innovative programs to be able to get more affordability than the market can deliver,” he said.

The NDP is also pledging to help more middle-class, first-time buyers into the housing market with a plan to finance 40 per cent of the price on certain projects, with the money repayable as a loan and carrying an interest rate of 1.5 per cent. The government’s contribution would have to be repaid upon resale, plus 40 per cent of any increase in value.

The Canadian Press reached out several times requesting a housing-focused interview with Rustad or another Conservative representative, but received no followup.

At a press conference officially launching the Conservatives’ campaign, Rustad said Eby “seems to think that (housing) is government’s job.”

A key element of the Conservatives’ housing plans is a provincial tax exemption dubbed the “Rustad Rebate.” It would start in 2026 with residents able to deduct up to $1,500 per month for rent and mortgage costs, increasing to $3,000 in 2029.

Rustad also wants Ottawa to reintroduce a 1970s federal program that offered tax incentives to spur multi-unit residential building construction.

“It’s critical to bring that back and get the rental stock that we need built,” Rustad said of the so-called MURB program during the recent televised leaders’ debate.

Rustad also wants to axe B.C.’s speculation and vacancy tax, which Eby says has added 20,000 units to the long-term rental market, and repeal rules restricting short-term rentals on platforms such as Airbnb and Vrbo to an operator’s principal residence or one secondary suite.

“(First) of all it was foreigners, and then it was speculators, and then it was vacant properties, and then it was Airbnbs, instead of pointing at the real problem, which is government, and government is getting in the way,” Rustad said during the televised leaders’ debate.

Rustad has also promised to speed up approvals for rezoning and development applications, and to step in if a city fails to meet the six-month target.

Eby’s approach to clearing zoning and regulatory hurdles includes legislation passed last fall that requires municipalities with more than 5,000 residents to allow small-scale, multi-unit housing on lots previously zoned for single family homes.

The New Democrats have also recently announced a series of free, standardized building designs and a plan to fast-track prefabricated homes in the province.

A statement from B.C.’s Housing Ministry said more than 90 per cent of 188 local governments had adopted the New Democrats’ small-scale, multi-unit housing legislation as of last month, while 21 had received extensions allowing more time.

Rustad has pledged to repeal that law too, describing Eby’s approach as “authoritarian.”

The Greens are meanwhile pledging to spend $650 million in annual infrastructure funding for communities, increase subsidies for elderly renters, and bring in vacancy control measures to prevent landlords from drastically raising rents for new tenants.

Yan likened the Oct. 19 election to a “referendum about the course that David Eby has set” for housing, with Rustad “offering a completely different direction.”

Regardless of which party and leader emerges victorious, Yan said B.C.’s next government will be working against the clock, as well as cost pressures.

Yan said failing to deliver affordable homes for everyone, particularly people living on B.C. streets and young, working families, came at a cost to the whole province.

“It diminishes us as a society, but then also as an economy.”

This report by The Canadian Press was first published Oct. 17, 2024.

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