Evergrande's bankruptcy may be just the beginning of China's real estate crisis - CNN | Canada News Media
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Evergrande's bankruptcy may be just the beginning of China's real estate crisis – CNN

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CNN
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Evergrande’s US bankruptcy serves as a cautionary tale about the growth-at-all-costs model that underpinned China’s spectacular growth over the past 30 years. 

For decades, Evergrande, once one of China’s most successful real estate developers, gobbled up debt as China’s economy exploded. Demand for housing was so strong, homebuilders often pre-sold apartment units to buyers before construction was complete. 

But a sudden shift in policy by China’s leaders two years ago has left the country’s property developers scrambling for cash, compounding a financial risks within the world’s second-largest economy. 

What happened to Evergrande? 

The story of Evergrande’s downfall began in 2021, when the central government moved to curb excessive borrowing to try to slow the rise in home prices, effectively cutting off a major source of funding for property developers.

Evergrande, which had $300 billion in liabilities, couldn’t shore up cash fast enough to make its debt payments.

It defaulted in December 2021, triggering a market panic. A wave of defaults followed, and China’s vast real estate market has yet to recover. Building was suspended on dozens of projects, leaving many “pre-sale” buyers left with no new home and a hefty debt burden.

What happens next as it tries to restructure billions of dollars in offshore debts has massive implications for China’s financial system.

Evergrande (pronounced “ever grand,” with a silent final “e”) filed Thursday for Chapter 15 bankruptcy, which is a way for foreign companies to use US bankruptcy law to restructure debt. The process will take time, as Evergrande has roughly $19 billion in offshore debts.

The next shoe to drop?

Evergrande’s liquidity crisis was just the beginning of the pain. Other large builders in China have since defaulted as they struggle to to shore up cash and demand for housing has fallen.

Now, investors around the world are watching nervously as Country Garden, which employs some 300,000 people, missed two payments on its multibillion-dollar debt and said it was considering “various debt management measures.”

China’s ‘Lehman moment?’ Big investment firm misses payments

The cash-strapped developer’s debt is now seen as a “very high risk” asset, according to Moody’s, which downgraded its rating on Country Garden last week.

Country Garden has until early September to make the payments it missed.

China’s economy is struggling

It’s hard to overstate the importance of the property market China. The industry accounts for as much as 30% of the country’s economic activity, and more than two-thirds of household wealth is tied up in real estate.

But nearly three years of “zero Covid” restrictions sapped China’s economic growth, and consumers have been reluctant to buy new homes in the face of higher unemployment and falling property values.

After a brief surge in activity earlier this year, China’s economic engines have been sputtering. Consumer prices last month fell for the first time in more than two years; youth unemployment has been rising so fast, Chinese authorities simply didn’t release the July data. Retail sales, export demand and factory production are all down.

Can’t Beijing just bail these companies out?

It’s unlikely. While Beijing has made some efforts to help jumpstart demand for housing and free up cash for developers, the days of big, state-funded bailouts for bloated industries appear to be over.

As President Xi Jinping said in a recent speech: “We must maintain historic patience and insist on making steady, step-by-step progress.”

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Greater Toronto home sales jump in October after Bank of Canada rate cuts: board

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TORONTO – The Toronto Regional Real Estate Board says home sales in October surged as buyers continued moving off the sidelines amid lower interest rates.

The board said 6,658 homes changed hands last month in the Greater Toronto Area, up 44.4 per cent compared with 4,611 in the same month last year. Sales were up 14 per cent from September on a seasonally adjusted basis.

The average selling price was up 1.1 per cent compared with a year earlier at $1,135,215. The composite benchmark price, meant to represent the typical home, was down 3.3 per cent year-over-year.

“While we are still early in the Bank of Canada’s rate cutting cycle, it definitely does appear that an increasing number of buyers moved off the sidelines and back into the marketplace in October,” said TRREB president Jennifer Pearce in a news release.

“The positive affordability picture brought about by lower borrowing costs and relatively flat home prices prompted this improvement in market activity.”

The Bank of Canada has slashed its key interest rate four times since June, including a half-percentage point cut on Oct. 23. The rate now stands at 3.75 per cent, down from the high of five per cent that deterred many would-be buyers from the housing market.

New listings last month totalled 15,328, up 4.3 per cent from a year earlier.

In the City of Toronto, there were 2,509 sales last month, a 37.6 per cent jump from October 2023. Throughout the rest of the GTA, home sales rose 48.9 per cent to 4,149.

The sales uptick is encouraging, said Cameron Forbes, general manager and broker for Re/Max Realtron Realty Inc., who added the figures for October were stronger than he anticipated.

“I thought they’d be up for sure, but not necessarily that much,” said Forbes.

“Obviously, the 50 basis points was certainly a great move in the right direction. I just thought it would take more to get things going.”

He said it shows confidence in the market is returning faster than expected, especially among existing homeowners looking for a new property.

“The average consumer who’s employed and may have been able to get some increases in their wages over the last little bit to make up some ground with inflation, I think they’re confident, so they’re looking in the market.

“The conditions are nice because you’ve got a little more time, you’ve got more choice, you’ve got fewer other buyers to compete against.”

All property types saw more sales in October compared with a year ago throughout the GTA.

Townhouses led the surge with 56.8 per cent more sales, followed by detached homes at 46.6 per cent and semi-detached homes at 44 per cent. There were 33.4 per cent more condos that changed hands year-over-year.

“Market conditions did tighten in October, but there is still a lot of inventory and therefore choice for homebuyers,” said TRREB chief market analyst Jason Mercer.

“This choice will keep home price growth moderate over the next few months. However, as inventory is absorbed and home construction continues to lag population growth, selling price growth will accelerate, likely as we move through the spring of 2025.”

This report by The Canadian Press was first published Nov. 6, 2024.

The Canadian Press. All rights reserved.

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Homelessness: Tiny home village to open next week in Halifax suburb

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HALIFAX – A village of tiny homes is set to open next month in a Halifax suburb, the latest project by the provincial government to address homelessness.

Located in Lower Sackville, N.S., the tiny home community will house up to 34 people when the first 26 units open Nov. 4.

Another 35 people are scheduled to move in when construction on another 29 units should be complete in December, under a partnership between the province, the Halifax Regional Municipality, United Way Halifax, The Shaw Group and Dexter Construction.

The province invested $9.4 million to build the village and will contribute $935,000 annually for operating costs.

Residents have been chosen from a list of people experiencing homelessness maintained by the Affordable Housing Association of Nova Scotia.

They will pay rent that is tied to their income for a unit that is fully furnished with a private bathroom, shower and a kitchen equipped with a cooktop, small fridge and microwave.

The Atlantic Community Shelters Society will also provide support to residents, ranging from counselling and mental health supports to employment and educational services.

This report by The Canadian Press was first published Oct. 24, 2024.

The Canadian Press. All rights reserved.

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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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