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How Does The Evergrande Debt Crisis End? What Impact Will It Have On The Hong Kong Property Market?

How Does The Evergrande Debt Crisis End?  What Impact Will It Have On The Hong Kong Property Market?

Evergrande Debt Crisis 

    The market continues to pay attention to the financial difficulties encountered by the mainland Evergrande Group. Investors are concerned about whether Evergrande can pay interest on US dollar bonds, and anxious about the effects of this event on the global stock markets. However, Evergrande bonds are mainly sold to institutional or professional investors in Hong Kong, and because Evergrande holds land projects, while Lehman held financial assets back then. Therefore, it is believed that the situation is different from the Lehman incident, and it is unlikely to cause similar consequences to the collapse of Lehman Brothers. 

    There is news that the central government may split Evergrande into three independent entities, and state-owned enterprises will take over the debt restructuring. The goal is to protect people who buy Evergrande real estate and wealth management products first, but it is expected that company shareholders and overseas bondholders will suffer greater losses. The central government may use the same method that was used on the HNA's debt restructuration case and send staff to replace the existing management, then reorganize the structure and sell assets for cash. There is currently no indication that the authorities will provide any form of financial support for the redemption of Evergrande bonds.
As for the risks to the banking industry, major banks claim that real estate-related loans accounted for about 41% of the total lending business of the banking industry. The majority of the mortgages are within low loan ratio and collateral but property, hence, the risks of mortgages are within control As for Evergrande’s loans, its total outstanding loans are irrelevant compared to the total loans of the banking industry amounted to RMB 30 trillion. Even if it turns into bad debt, it will not cause systemic risks to the banking industry. Therefore, the potential risks of Evergrande’s failure are not comparable to the Lehman incident.

Impact On Hong Kong's Property Market

    The long-term rise of Hong Kong's property market maybe is time to meet its end. After it was reported last week that the central government asked Hong Kong real estate developers to help alleviate the housing shortage, the local political and business circles responded fiercely. After the stock market plummeted by a thousand points, there are many different industries represented put forward suggestions for building more Guangsha. Under these circumstances, the second-hand property market in Hong Kong has begun to show a downward trend. Recently, many districts have started to lower their target price for a sale. Many people are eager to leave the market even with a price reduction of 500,000 to 800,000 dollars, and even experienced property investors are also beginning to leave the market. With the debt crisis of the well-known mainland developer Evergrande, there is a risk of others organizations in the property industry to follow withdrawing their investment and that may as well cost the property market to fall.
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