Presumably the speculated value exceeds the value of the physical houses.

They sold more than they have created. Ie they need money to finish the ones they have sold.

And they have excess debts that their assets no longer cover because the housing market crashed.

Additionally, they just took on obscene debts. The banks did not do the appropriate due diligence (hypothesis is the local governments interfered).

But I know only what rando YouTube videos have told me.

TLDR: there's a huge regulatory crisis going on in both the US and China markets (again). Now the failure of 1 large entity can crash entire empire(s).

Basically the same corruption that societies have been battling ever since societies existed.

What's the worst that can happen? It's all just numbers on papers or memory. When Evergrande folds, others will pick up the opportunity.

Why should the government and the non-investors pay for government agencies that enforce regulations? If investors cannot handle due diligence, let them pay private agencies to secure their investments.

Any financial crisis was just numbers on papers or memory. Yet implications are very tangible

> What's the worst that can happen?

The Great Depression, the Great Recession.

> Why should the government and the non-investors pay for government agencies that enforce regulations?

Apart from them being ostensibly a communist nation, it's good for business. Everyone's business.

This is also why Greece got a lot of help from Germany and the IMF about 10-15 years back.

> If investors cannot handle due diligence, let them pay private agencies to secure their investments.

How? The investment is a promise to build a home.

>> What's the worst that can happen?

> The Great Depression, the Great Recession.

If China descends into chaos, it could be alot worse than the Great depression, since so much of the world depends on China, and since they have a crazy arsenal of weapons.

The Great Depression was almost certainly a contributing factor to WW2.

Yes, the nazis were a fringe political part polling below 3% before 1929. The Weimar republic was relatively stable and it seemed that the biggest economical issues were already behind..

Worst that can happen? If banks have used peoples' savings to purchase Evergrande debt or anything related then the banks may not get repaid which would result in the banks losing peoples' money leading to people spending less money resulting in a recession or depression.

Instead of the bad debt defaulting and a recession, what alternative is there? Prop it up a little longer? Default on everything, go to CBDC, and issue everyone monthly CBDC tokens to buy food?

I guess you could forgive the loans people took for houses that were not built and let the bond holders share the hit.

I think some of the bondholders are banks. The others are ccp cadre.

That will trigger a run.

Mandatory liberatarian "let the market decide" post.

> What's the worst that can happen? It's all just numbers on papers or memory.

Pardon my French, numbers on paper my ass.

Economic uncertainty leads to people killing themselves. Suicide rates go up during recessions and depressions.

https://www.frontiersin.org/articles/10.3389/fpubh.2022.9070...

> In general, economic crisis, unemployment rate and other macroeconomic measures are associated with increased risk of suicidal behavior at the aggregated level.

It's not a problem in itself, but a sign of the destress the company is in. Evergrande has huge debts and is struggling to pay suppliers. It has started (or received payments for) hundreds of thousands of units that could be abandoned if the company goes bust (many already are), leaving many people with nothing but mortgages for property that doesn't exist.

https://www.reuters.com/world/china/unfinished-evergrande-ap...

Philosophically the problem is always about how to distribute wealth instead of how much wealth we have. I'm not saying the problem of China. I mean the problem of humankind.

Practically, just like any other real estate developer, they have tons of unfinished projects and now we don't know the future of them. And of course it's just one of the problems.

Evergrande sells apartments before they are built to fund construction, and the purchasers pay mortgages during the build. If the company has insufficient funds to complete ongoing construction, which gets delayed, purchasers stop paying their mortgages and the company goes into a death spiral. Meanwhile purchasers get shafted, buildings stand uncompleted, and construction workers and materials suppliers see demand collapse.

This creates a situation where developer and homeowner interests aren’t aligned. Once the developer receives the money, they are not incentivized to deliver the house on time or do quality construction.

The other model, where investors fund development before the house is sold, aligns both parties. The developer/investor wants to produce a good product so that it will sell at a high price and the buyer has the chance to inspect the property before purchasing.

>The developer/investor wants to produce a good product so that it will sell at a high price and the buyer has the chance to inspect the property before purchasing

That should be a solution. But not usually that simple, sadly

The developer/investor wants to produce a product that LOOKS good so that it will sell at a high price. Read the other comments about quality

And, those investors often sell the property before it is finished or before it’s even started. So you have the same problem, with a longer chain of middlemen

There's some truth to this, but the appearance of quality is far more important in the latter scenario than actual quality. The average buyer isn't a housing inspector. They may have googled some stuff beforehand, but that's not saying much. It's another incarnation of the "informed consumer" farce.

Note this isn't merely a Chinese thing. A variation of this is in fact the default way new units get build and sold in the Netherlands, for example.

Personal anecdote. I had a mortgage for 2 full years before being able to move in to my apartment because I bought it before a single stone was laid. The way this works here is that the money is held into an escrow account for most of time, with the construction company only receiving payments in installments (e.g. 'roof finished'). Lastly, the final 5% of the purchase amount is held back until 3 months after the unit is finished, which can be extended if large defects are found. Bankruptcy risk was covered with an insurance, which was a condition to the mortgage.

I would have to assume the company didn't use those payments to fund the building of properties for earlier mortgages. The Ponzi scheme nature of it is the Chinese thing (not that it has anything to do with being Chinese, it's just the reality of Chinese real estate today and of the past decades). Paying for the construction of a new home in installments is something done across the world.

If previous poster's description is correct, they would have to, right? Or have a revolving fund of debt which is the same thing with extra steps. Builder doesn't get paid until after building things, the construction has to be paid for somehow.

I guess the money being in escrow puts the risk on the builder instead of the buyer.

Iirc, Evergrande took on debt to pay for construction and used the money paid by customers to service those debts. That's the missing step.

What’s the purpose of doing one of these? I’m not seeing the benefit on your side of paying for 2 years of mortgage but not living in the property.

guarantees you a spot of your choosing in a building of your choosing, which might be in demand in big cities -- there is only so much space in big, tight, well-established cities.

anecdotally, we were looking at houses to buy and many of the nice, well-priced ones, had multiple bids and even price increases (e.g. throw another $10k on it). not quite a full-on bidding war, but it became clear that if you want in you get in early, and pay for the privilege's.

same idea, except the place ain't built yet.

You can do something similar in India as well. The benefit is that you get the flat at cheaper rate, at the risk of losing all your investment. There have been many cases of the developer going bankrupt, but nothing at the scale of evergrande.

Because it's the only way to buy new property in my location.

It's a bit more complicated than that even if they have delivered all the houses. If they owe other companies huge amounts of money that they issued through debt bonds (and sold internationally), then it can affect companies and banks that are not related.

Their physically ability to deliver homes is not what's at stake here.

Evergrand and other I-companies all tried to become "everything" companies.. They invested heavily into other parts of the Chinese economy. Like ecars, manufacturing etc. and these parts are now going bankrupt too. I guess the ccp has about one or two years left, it will not weather this storm. To many life savings, dreams and futures get crushed right now. One can not eat bitter forever.

>The houses that they've built are still standing

No, they are demolishing whole empty cities to keep the prices up.

https://asia.nikkei.com/Spotlight/The-age-of-Great-China/Con...

https://www.youtube.com/watch?v=8AuWH2GdH1w

These probably aren’t the homes Evergrande has sold, mostly in south China. Ordos Kangbashi will never be populated because coal is on the way new out, a true ghost city that is only categorized as a success via goal post moving and lots of demolition (Ordos itself isn’t a ghost town, just this new district).

The article talks about buildings in kunming being demolished. While kunming definitely went through a big bubble, I would hardly call it a ghost town now.

There are a number, and I mean a large number of issues. I'll just pick a few

1.) as of 2021, There are nearly 800 unfinished Evergrande projects in more than 200 cities across China. https://www.nytimes.com/2021/09/28/business/china-evergrande.... Even if the buildings were unfinished, the buyer still had to keep paying the mortgage!! and if they didn't, and the courts foreclosed the property and sold it, the buyer is liable for the fees and the differences. Most of the time the buyer is hugely underwater since the real estate price in 2023 has crashed 50% - 70% from peak. And now, because your social credit is shot, you no longer can purchase tickets for flight or train, making it even harder to try to find jobs to pay back your debt.

2.) China is known for its tofu dreg buildings. Just google online if you want to see brand new condos with facades blown off, cracked foundation, sand mixture where cement should be, tilted buildings, etc. This is especially true with buildings built in the last few years. And this is especially true for buildings from bankrupt mega developers like evergrande and country garden.

3.) This is a domino that leads to a series of systemic collapse. Country garden, the second largest developer in China, missed bond payments as small as 22 million recently. It had a capitalization of 60B in 2018. Now it has a debt of 200B. Zhongzhi enterprise missed payments recently, being one of the largest trust company. People are reminded of Lehman from these events. https://www.businessinsider.com/china-economy-beijing-lehman.... Doesn't help that export and import just collapsed by double digits in July, exports to US dropped 23% y/y, there's huge youth unemployment of at least 22%, foreign investment dropped 90% in 2023, and the worst flood in the last 50 years just hit China's biggest grain region.

Oh yeah, and because Chinese citizens are outraged by Fukushima release, they are boycotting Japanese seafood, and in general all seafood, which has decimated the entire seafood industry in China overnight, with no traffic to seafood market or restaurants.

4.) Even if the buildings were done, a lot of the buildings are empty and not livable due to shoddy finish, foreclosures, no public amenities working, lack of residents (owners are selling the units at 50% price cuts), etc. Imagine living in a huge 50 story building with only a few residents at night. https://www.architecturaldigest.com/story/see-inside-a-ghost...

> yeah, and because Chinese citizens are outraged by Fukushima release, they are boycotting Japanese seafood, and in general all seafood, which has decimated the entire seafood industry in China overnight, with no traffic to seafood market or restaurants.

This one is hilarious. China imports very little seafood from Japan, and they just single handedly tanked their domestic seafood industry for a few bananas worth of radiation.

So Japan's dumping of radioactive waste into the ocean might just be one of the greatest things ever done for marine life.

This could be the first time in history that the "green" / petroleum alliance's anti-nuclear FUD has ever had a positive outcome for the environment.

Maybe you are right? The seafood industry is really close to collapse for wild catches throughout the rest of the world.

> what's the problem

The problem is you assume they're legit. Who says they actually completed the projects (houses)? Who says there are no defects and that people can live in them? How do you even come to that conclusion? Just assume in good faith?

There are videos online that show the deplorable construction standards used in some of these houses.

Yeah many of these apartment buildings are so bad no one can move into them. They're often demolished a few years later. Construction standards just don't exist in China, and people are forced to continue paying mortgages on these properties under threat of prison. Given this extraordinary position of power and laissez-faire, the major construction companies have been way over-leveraging. Most analysts are confused as to why it has taken so long for the industry to collapse. The prevailing sentiment is that the government keeps stepping in every time another company is ready to fall. Eventually the government will just own all the construction companies directly, and the CCP has a poor investment and management track record.

>>>>deplorable construction standards used in some of these houses.

I read "deplorable construction standards in some of these tree houses. "

I was about to question your statement...

If they were built, then where did the money to build them come from?

Imagine solving the affordable housing problem, but by doing so you create a nation scale ponzi scheme with trillions of dollars on the line because it also simultaneously made up the majority of your country's economic activity for 2 decades. That's what China is in the pickle with.

It's great they have all this housing, except there's both nobody to live in them (they were investment homes) and there's all this debt tied up in even completing the ones that were ponzied out.

They basically took the US 2008 Mortgage fiancnial crisis and said, WE CAN MAKE IT BIGGER, BY A LOT.