On Jul 11, according to the Hong Kong Stock Exchange, 8 Chinese real estate and property management stocks were removed from the Hang Seng index after the suspension of trading for 3 consecutive months.
The list of companies that were kicked out of the Hang Seng Index includes giant Evergrande, Sunac, Kaisa Group, China Aoyuan, and Shimao Group.
Being excluded from the Index means that those property developers’ stocks lost the dividends investors are interested in and that the capital market has completely abandoned them.
The past two decades have been the golden age for China’s real estate when people believed that Chinese housing prices only rise but not fall. This goes against the market rule that what goes up must come down. Chinese developers have struggled since 2020, when regulators rolled out deleveraging measures. Shimao, one of China’s largest developers, recently defaulted on a 1 billion dollar bond payment after failing to pay interest and principal. About 60 Chinese developers have more than $13 billion in debt before the year’s end.
According to Reuters, official data on Friday showed output in the property sector shrank 7% in the second quarter from a year earlier, marking the fourth straight quarter of decline.
Homebuyers refused to continue the mortgage payments on unfinished houses. More than 200 projects have been affected by the mortgage boycott, and at least 80 property developers have been affected so far. The real estate sector liquidation and banking system stumbling will lead to turmoil in the whole financial system.
To rescue the economic contraction, Beijing pushes to solve the crisis by instructing banks to step up lending to finish projects. However, according to Mark Dong, Hong Kong-based co-founder and general manager of Minority Asset Management, “The biggest risk is impairment to consumer confidence, which threatens the nascent recovery in property sales.”