The Chinese real estate group Evergrande previously pledged to build a huge complex, consisting of buildings, shopping centers and parks, but this project was abandoned, in a move that reflects the severe crisis experienced by this company and the real estate sector in China in general.
Simon Leblatter, in a report published by the French newspaper "Le Monde", says that the headquarters of the Evergrande Group is now empty of customers, except for those who came to settle some administrative problems.
One of the company’s employees, called Hu Kui, is a saleswoman in her thirties, who received a visit from a woman who came with a series of contracts, and on her face signs of frustration. The company is offering these same apartments for sale at two-thirds of that price.
“Even with this collapse in prices, no one wants to buy, and this customer is supposed to receive her apartment next May,” Hu Kui says, but all the workers have left their sites in dozens of buildings that were being built, in Jurong City, where 640,000 live. Lives in east Nanjing (the capital of Jiangsu Province).
The writer points out that this real estate group suffers from debts amounting to 260 billion euros, and has defaulted on many of the installments due, the payment of the money of the suppliers of goods, and the completion of the apartments that the owners paid for in advance.
But Evergrande is not alone. In recent weeks, other Chinese real estate developers, such as Scenic, Fantasia and Modern Land, have defaulted on important installments.
This huge cultural and tourist city promoted by the Evergrande Group in Jurong reveals the reasons that led this real estate developer, and a large part of the real estate sector in China, to the brink of bankruptcy.
In 2017, when construction prices were skyrocketing in China, Evergrande launched 15 projects, combining apartment buildings and parks across the country.
Here in Jurong, the Evergrande has bought 134 hectares of land, half for parks and half for building 56 buildings, but all these buildings now seem completely empty.
"This shop will close at the end of this month, because people no longer come here, and there is no money to spend. I will go back to where I came from," says the last worker still in her shop in this area.
Evergrande was also planning to establish water parks and advanced cinema halls in this place, and placed advertising banners on the main roads, in which it boasted of the diversity of its investments, between real estate, electric cars, media, marketing of drinking water and amusement parks, with the aim of impressing customers and gaining their trust, but the opposite is the case What happened, as this policy eventually led to the collapse of the company.
Evergrande asserts that it invested about 20 billion euros in its electric vehicle branch in 2019, but it lost this investment with the shares of this branch in the stock market declining to one of 20 of its original value, since last April.
Buying apartments for speculation
One of Evergrande's employees says, "The company focused on building residential buildings because their financial returns are high and guaranteed, and the apartments are sold before construction begins."
“Indeed, most of these apartments were sold, but they remained just cubes of cement, devoid of life. No one lives here, and most of the owners bought these apartments for speculation and to make a quick profit by raising prices,” according to the writer.
The writer points out that China in the past decade was using 3 times the amount of cement that the United States consumed in the 20th century. The real estate sector indirectly contributes to China's economic growth, but the management model of this sector is highly dependent on debt.
Lots of selling before construction
Despite the many risks surrounding this approach, the authorities have chosen to ignore this situation for many years, because the construction sector generates important incomes, and the municipality of Jurong, for example, has a budget in 2020 of about 1.74 billion euros, and it obtained more than half of this amount from the sale Residential land.
However, starting from 2017, the government decided to launch a campaign to reduce the indebtedness of these companies, and to place restrictions on the activities of banks and real estate developers, and this prompted them to focus on selling before construction, and to encourage buying homes for the purpose of investment.
This situation prompted the Chinese government to confront these companies, after an economic report revealed in the summer of 2020 that China now has more than 100 million apartments owned by investors and devoid of residents, in addition to 30 million unsold apartments, which are sufficient numbers to house more than 340 million citizens. Chinese.
Therefore, in August, the government imposed 3 red lines, related to accounting and financial auditing, that these companies are prohibited from crossing, which prompted the Evergrande Group to stop spending money.
"A lot of the group's employees jumped out of the boat, there are too many empty apartments, and the real estate bubble has become a fait accompli. Who will buy houses and shops in this situation?" said Hu Kui, an employee who is preparing to leave.
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