An exterior view of China Evergrande Centre in Hong Kong, China March 26, 2018. Picture taken March 26, 2018. REUTERS/Bobby Yip HONG KONG (Reuters Breakingviews) – There’s a slow leak from China’s property bubble. A full-on crash would upend economic and political stability, but Beijing is maintaining curbs on speculation. That hard line could hobble recovery. Even then, a correction is inevitable. China Evergrande Group, the country’s second-largest developer, just warned that last year’s profit could halve from 2018. It is cutting prices in some places by more than one-fifth, and juicing sales with exotic promotions like purchase options for a refundable 5,000 yuan ($707) deposit. Such financial razzle-dazzle is unlikely to save $18 billion Evergrande, its peers or their creditors from a brutal reckoning. Companies in the Cninfo Real Estate Index on average are sitting on net debt worth nearly 200% of equity. The sector has $92 billion of bonds maturing this year, and $171 billion due in 2021, according to Dealogic. Defaults appear unavoidable. Property sales fell nearly 40% in the first two months of this year, the worst performance on record. A default wave would punish bondholders, and banks could get hammered, too. Property is the collateral… Read full this story
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