In the wake of the uncertainties surrounding China Evergrande Group and its potential default on its $300 billion debt, industry insiders are debating what this means for the rest of the Chinese real estate market.
Speaking with CNBC, Matthews Asia portfolio manager Teresa Kong discussed the Evergrande crisis and the long-term opportunities in China’s real estate. Analyzing China and its move to urbanization, she said:
“If you look at where China is in terms of its urbanization rate, it just reachedthe 60% mark and the U.S is solidly above 80%, and Japan is in the 90s, so from a long-term perspective, I think the property sector still has lots of growth.”
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Kong added:
“It is such an important sector to the overall GDP of China representing approximately a quarter of the GDP so overall there is a substantial amount of opportunity in the real estate sector.”
Investors need to be prudent in the sector
Without mentioning names, Kong recommended that investors choose certain managers that have a lengthy track record of selecting solid firms with great governance and a strong balance sheet, as well as companies that have been very conservative with their leverage usage.
On the topic of Evergrande, Kong was questioned what a restructured version of the property developer would look like and whether it would be investable again. In response to the question, the portfolio manager remarked:
“That is the $10,000 question. At the current time, we know that the government is working with all of the stakeholders to ensure an orderly restructuring. Whether this actually
means that there will be an ongoing concern called Evergrande when all of this is said and done it’s actually not clear.”
She did note, however, that there will almost certainly be a large number of asset sales from the company’s balance sheet to repay creditors, which includes all stakeholders from the very top who purchased wealth management products to those who made payments all the way to the bottom of the capital structure, which would include both offshore bondholders and equity holders.
Investors gather outside China Evergrande’s HQ
A notable protest took place on Tuesday, January 4, outside the China Evergrande Group’s Guangzhou offices, with demonstrators expressing concern that their investment returns would be compromised in order to keep the company’s real estate projects afloat.
While on Monday, January 3, shares were suspended from trading until “inside information” was made public, according to the ailing property developer, which did not disclose any other information.
Watch the video: China’s property sector has room for growth
