Wassim Jumaa, head of investment at Capital Investments, said the sales of the troubled Chinese real estate firm Evergrande represent 4% of the sales of the Chinese real estate sector, which is worth 40 trillion dollars, while 40% of the private assets are stored in properties.
He stressed in an interview with Al-Arabiya that the Chinese decision maker will prioritize the protection of home buyers, followed by the Chinese investor and local banks to avoid the occurrence of systemic risk, and then the role of bondholders in dollars, which makes up a small percentage of Evergrand’s total debt.
China’s Evergrande is the most heavily indebted real estate developer in the world, with total debt exceeding $ 300 billion. The company struggled to pay its suppliers and warned investors it could default on its debt.
Juma’a pointed out that the real estate developer crisis will cast a shadow on 3 main sectors, the basic materials sector such as cement and iron related to the real estate sector, as well as related employment.
Then comes the furniture and appliances sector, which is branched out from the housing sector, and then the banks, with the expansion of credit spreads, the pricing of credit risks, and a contraction in loans to the real estate sector, which will affect China’s economic growth. .
He added that whenever the strike is limited by injecting torrential rains and renovating the company’s buildings, the impact will be limited to between 1% and 1.5% of China’s gross domestic product, according to the expectations of economists.
He also referred to statements by the Chinese government, which confirmed that the crisis will be limited, stating that indicators so far do not show that the crisis will deepen and extend.
Chinese economic growth
Capital Investments’ investment manager added that the PMI will be monitored and if it drops from 50 to 49 or 48, the world’s second largest economy will slow down.
And Fitch Ratings lowered its economic growth forecast for China for 2021 and 2022, as the slowdown in the housing market affects domestic demand.
Gross domestic product is expected to grow by 8.1% quest’year, in decrease from a previous forecast of 8.4%, while the forecast for 2022 was reduced to 5.2% from 5.5%, the rating agency said in a statement Thursday, based on its comprehensive report issued this past week.
The People’s Bank of China injected $ 17 billion in cash through seven- and 14-day reverse repurchase agreements, and this came amid concerns over the Evergrande Group’s debt crisis.
Interestingly, most of Evergrande’s debt is due to unit payments in development phase on the map, which so far amount to 1.6 million units undelivered, while foreign banks’ exposure to Evergrande bonds is limited.
The company has around 778 projects in implementation phase in 223 Chinese cities, which reflects its size in China, and it also has investments in other sectors such as auto electric and water in bottle.
Evergrande is the largest Chinese real estate company by revenue with a total of $ 79 billion. The company’s crisis has caused fear in China that the real estate sector accounts for 29% of the country’s GDP.
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