It was reported this week that the wealth of China’s most affluent real estate tycoons has plummeted in 2021.
China’s eight richest real estate moguls have lost a collective $46 billion this year, led by Evergrande Group founder Hui Ka Yan, whose fortune has dropped by more than $17 billion. Hui was once Asia’s wealthiest man, but his fortune has plummeted to $6.1 billion, prompting the government to ask him to repay investors with his own money following Evergrande’s high-profile debt issue.
New curbs enacted last year to relieve some of the pressure on the housing market have wreaked havoc for high-leverage developers, with 15 of them defaulting in 2021. Evergrande made headlines in September when it flirted with bankruptcy, putting the real estate sector, which had driven much of the world’s second-largest economy’s development, to the test and sent global markets falling as investors assessed contagion risk.
The Chinese property developer is now in default, according to rating agency Fitch Ratings, after two companies failed to make coupon payments to creditors. It further lowered the company’s credit rating to junk status. S&P Global Ratings placed Evergrande in default and downgraded its debt on Friday as well.
Early evaluations of the Evergrande predicament led investors to believe that the property developer was too large to fail and that the government would bail it out. That hope has been crushed, as a series of missed payments has sent the company’s bonds to new lows, prompting ratings agencies to declare a default. China’s housing market accounts for almost a fifth of the country’s GDP.
According to sources, the real estate turbulence this year has pushed some tycoons off the country’s list of billionaires. Zhang Yuanlin, the chairman of Sinic Holdings, had his fortune plummet by 75% in a single day, while the family that runs Kaisa Group Holdings saw their wealth plummet to just $160 million. Early financial studies of the Evergrande situation led investors to believe that the property developer was far too big to fail, and that the federal government would step in to save it.
“China’s real estate sector has risen at a breakneck pace over the last two decades, thanks to aggressive expansion fueled by high debt, enhancing wealth in the country,” said Terence Chong, an associate professor of economics at the Chinese University of Hong Kong. “With fewer credit lines from banks, the development will undoubtedly slow. Property will become less mainstream in the future as China’s economy transforms and upgrades.”