Beyond Evergrande, China’s Property Market Faces a $5 Trillion Reckoning

As many economists say China enters what is now the final phase of one of the biggest real-estate booms in history, it is facing a staggering bill: According to economists at Nomura, $ 5 trillion plus loans that developers had taken at a good time. Holdings Inc.

The debt is almost double that at the end of 2016 and last year exceeded the overall economic output of Japan, the world’s third-largest economy.

With warning signs on the debt of nearly two-fifths of growth companies borrowed from international bond investors, global markets are poised for a potential wave of defaults.

Chinese leaders are getting serious about addressing debt by taking a series of steps to curb excessive borrowing. But doing so without hurting the property market, crippling more developers and derailing the country’s economy is turning into one of the biggest economic challenges for Chinese leaders, and one that resonates globally when mismanaged. could.

Luxury Developer Fantasia Holdings Group Co. It failed to pay $206 million in dollar bonds that matured on October 4. In late September, Evergrande, which has more than $300 billion in liabilities, missed two interest-paying deadlines for the bond.

A wave of sell-offs hit Asian junk-bond markets last week. On Friday, bonds of 24 of 59 Chinese growth companies on the ICE BofA Index of Asian Corporate Dollar Bonds were trading at over 20% yields, indicating a high risk of default.

Some potential home buyers are leaning, forcing companies to cut prices to raise cash, and could potentially accelerate their slide if the trend continues.

According to data from CRIC, a research arm of property services firm e-House (China) Enterprise Holdings, overall sales among China’s 100 largest developers were down 36 per cent in September from a year earlier. Ltd.

It revealed that the 10 largest developers, including China Evergrande, Country Garden Holdings Co. and china wenke Co., saw a decline of 44% in sales compared to a year ago.

Economists say most Chinese developers remain relatively healthy. Beijing has the firepower and tighter control of the financial system needed to prevent the so-called Lehman moment, in which a corporate financial crisis snowballs, he says.

In late September, Businesshala reported that China had asked local governments to be prepared for potentially intensifying problems in Evergrande.

But many economists, investors and analysts agree that even for healthy enterprises, the underlying business model—in which developers use credit to fund steady churn of new construction despite the demographic less favorable for new housing—is likely to change. Chances are. Some developers can’t survive the transition, he says.

Of particular concern is some developers’ practice of relying heavily on “presales”, in which buyers pay upfront for still-unfinished apartments.

The practice, more common in China than in the US, means developers are borrowing interest-free from millions of homes, making it easier to continue expanding but potentially leaving buyers without ready-made apartments for developers to fail. needed.

According to China’s National Bureau of Statistics, pre-sales and similar deals were the region’s biggest funding sources since August this year.

“There is no return to the previous growth model for China’s real-estate market,” said Hous Song, a research fellow at the Paulson Institute, a Chicago think tank focused on US-China relations. China is likely to put a set of limits on corporate lending, known as the “three red lines” imposed last year, which helped trigger the recent crisis on some developers, he added. That China can ease some other restrictions.

While Beijing has avoided explicit public statements on its plans to deal with the most indebted developers, many economists believe leaders have no choice but to keep the pressure on them.

Policymakers are determined to reform a model fueled by debt and speculation as part of President Xi Jinping’s broader efforts to mitigate the hidden risks that could destabilize society, especially at key Communist Party meetings next year. before. Mr. Xi is widely expected to break the precedent and extend his rule to a third term.

Economists say Beijing is concerned that after years of rapid home price gains, some may be unable to climb the housing ladder, potentially fueling social discontent, as economists say. The cost of young couples is starting to drop in large cities, making it difficult for them to start a family. According to JPMorgan Asset Management, the median apartment in Beijing or Shenzhen now accounts for more than 40 times the average family’s annual disposable income.

Officials have said they are concerned about the risk posed by the asset market to the financial system. Reinforcing developers’ business models and limiting debt, however, is almost certain to slow investment and cause at least some slowdown in the property market, one of the biggest drivers of China’s growth.

The real estate and construction industries account for a large portion of China’s economy. Researchers Kenneth S. A 2020 paper by Rogoff and Yuanchen Yang estimated that industries, roughly, account for 29% of China’s economic activity, far more than in many other countries. Slow housing growth could spread to other parts of the economy, affecting consumer spending and employment.

Government figures show that about 1.6 million acres of residential floor space were under construction at the end of last year. This was roughly equivalent to 21,000 towers with the floor area of ​​the Burj Khalifa in Dubai, the tallest building in the world.

Housing construction fell by 13.6% in August below its pre-pandemic level, as restrictions on borrowing were imposed last year, calculations by Oxford Economics show.

Local governments’ income from selling land to developers declined by 17.5% in August from a year earlier. Local governments, which are heavily indebted, rely on the sale of land for most of their revenue.

Another slowdown will also risk exposing banks to more bad loans. According to Moody’s Analytics, outstanding property loans—mainly mortgages, but also loans to developers—accounted for 27% of China’s total of $28.8 trillion in bank loans at the end of June.

As pressure on housing mounts, many research houses and banks have cut China’s growth outlook. Oxford Economics on Wednesday lowered its forecast for China’s third-quarter year-on-year GDP growth from 5% to 3.6%. It lowered its 2022 growth forecast for China from 5.8% to 5.4%.

As recently as the 1990s, most city residents in China lived in monotonous residences provided by state-owned employers. When market reforms began to transform the country and more people moved to cities, China needed a massive supply of high-quality apartments. Private developers stepped in.

Over the years, he added millions of new units to modern, streamlined high-rise buildings. In 2019, new homes made up more than three-quarters of home sales in China, less than 12% in the US, according to data cited by Chinese property broker Kei Holdings Inc. in a listing prospectus last year.

In the process, developers grew to be much bigger than anything seen in the US, the largest US home builder by revenue, DR Horton. Inc.,

Reported assets of $21.8 billion at the end of June. Evergrande had about $369 billion. Its assets included vast land reserves and 345,000 unsold parking spaces.

For most of the boom, developers were filling a need. In recent years, policymakers and economists began to worry that much of the market was driven by speculation.

Chinese households are prohibited from investing abroad, and domestic bank deposits provide low returns. Many people are wary of the country’s booming stock markets. So some have poured money into housing, in some cases buying three or four units without the intention of buying or renting them out.

As developers bought more places to build, land sales boosted the national growth figures. Dozens of entrepreneurs who founded growth companies are featured on the list of Chinese billionaires. Ten of the 16 soccer clubs of the Chinese Super League are wholly or partially owned by the developers.

Real-estate giants borrow not only from banks but also from shadow-banking organizations known as trust companies and individuals who invest their savings in investments called wealth-management products. Overseas, they became a mainstay of international junk-bond markets, offering juicy produce to snag deals.

A builder, Kaisa Group Holdings Ltd. , defaulted on its debt in 2015, was still able to borrow and later expand. Two years later it spent the equivalent of $2.1 billion to buy 25 land parcels, and $7.3 billion for land in 2020. This summer, Cassa sold $200 million of short-term bonds with a yield of 8.65%.

By: Quentin Webb & Stella Yifan Xie 

Source: Beyond Evergrande, China’s Property Market Faces a $5 Trillion Reckoning – WSJ

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Seven Simple Steps To Sounder Sleep

Everything about our day impacts our sleep. How many minutes we spend outside, what and when we eat, what’s happening with our hormones, our habits, emotions, stress and thoughts – all this feeds into the sleep we end up with at night. All of which I was completely oblivious to when battling chronic insomnia for years on end.

Sleep anxiety can create a very real and vicious circle. I would spend hours lying in bed, increasingly wired, anxious and exhausted as time ticked by, with prescription sleeping pills within reach for those 3am nights when I had to be up first thing. The problem is that the more we worry about sleep, the higher our stress hormones go – and too much of the stress hormone cortisol, whatever the trigger, disturbs our sleep.

We’re left in a state of fight or flight, when we need to be in the opposite state of rest and digest. When my insomnia was at its worst, I’d start my day exhausted, running on empty, and have recurring burn-out days, where an overwhelming fatigue would stop me in my tracks, forcing me to lie down and recharge.

I realise now that the various sleep tips I tried over the years were like sticking plasters on a broken leg – there’s only so much that lavender, earplugs or herbal teas can do when your sleep is disrupted and out of control. Fortunately a eureka moment came along, when I was reading a book by my great great uncle, Richard Waters, a pioneer in cognitive therapy and clinical hypnosis and a protégé of the French pharmacist and self-help guru Emile Coué.

Waters wrote just a couple of pages about insomnia – how the words we use and having an understanding of sleep biology affects our mind, body and our sleep – but they were intriguing enough to set me thinking, researching and experimenting. I interviewed various experts and tried out all the sleep science and tactics I came across, while considering sleep in a much wider context than usual.

Waters also wrote a short, first-person sleep script, about what should be going on in the mind and body in the countdown to sleep. And I recorded myself reading this one-minute sleep script on my phone, which I listened to every day, when fixing my own insomnia and researching my book Teach Yourself to Sleep.

Listening to a sleep script allows us to harness the power of suggestion, using self-talk and clinical hypnosis to change our habitual thoughts, physiology and behaviour. I discussed this at length with clinical hypnosis expert Professor Peter Whorwell, whose hospital department at Manchester University NHS Foundation Trust creates bespoke scripts to help treat a wide range of disorders, including insomnia, phobias, pain and debilitating IBS symptoms, with a 75-80% success rate, where other treatments have failed.

Following the thread from Waters and Coué to now, and exploring the fascinating world of sleep, light and habit science, experimental psychology and more, it became clear that it pays to have a basic grasp of the biology and science of sleep and to appreciate the extraordinary power of the mind-body loop. Getting results that last makes life easier on so many levels – quality sleep not only improves our physical and mental health but also our energy levels, cognitive function and overall wellbeing.

I now instinctively remove obstacles that will get in the way of my sleep and set up sleep habit cues throughout my day. This means I can go to sleep without being up half the night, and wake up refreshed and able to get the most out of the following day. Here are seven sleep tips I used to dismantle my insomnia.

1) Stop calling yourself a bad sleeper!

Our words have an immediate effect on us physically and mentally – and you can see this in action if you consciously choose diametrically opposed words to describe the same situation. The words we choose alter our feelings, perceptions, hormones and behaviour, including our sleep.

There are some astounding studies on this and the mind-body loop, and how this can be manipulated to improve our health. As Professor Brooks of the Harvard Business School told me: “Our words codify and solidify our thoughts” – and, in turn, they change how we feel.

2) Embrace the biological fact that your body responds to too much light

Our body is hard-wired to line itself up with the light and dark of nature’s 24-hour clock. As with everything that influences your sleep, it makes all the difference if you’re aware of the simple biology taking place. In this instance, it’s understanding that the extremely light-sensitive cells in your eyes help keep your sleep-wake cycle turning as it should.

I use a light box on certain mornings, to give my office light some extra clout. At the other end of the day, a screen break before bed, moving away from bright, stay-wake signals and towards the darkness of night, helps boost sleep-inducing melatonin levels.

3) Weaken the negative fallout from stress

Stress is a huge sleep disrupter with nearly 50% of sleep issues blamed on stress. To help balance the body’s chemical cocktail in favour of sleep, it’s invaluable if we lean on science-based stress busters, to bring down our cortisol levels, which the pace, anxiety and overstimulation of modern life is forever increasing.

Effective stress busters I’ve found include “forest bathing”, aka walking among trees, as well as reframing my emotions and changing my perception of stress to weaken its hold. I regularly make use of these tactics among others if I feel my stress levels spiking during the day.

4) Know your DIY sleep habit science

Bad sleep habits, like any other, can be systematically intercepted and replaced with good ones, once you know how they take shape in the brain. Our bedroom is our sleep habit context, and making certain changes here, behavioural and content-wise, helps to break automatic sleep behaviour. Displacing negative rumination by listing the things you’re grateful for gets measurable results.

Another thing you can do is remove sleep-sabotaging cues from your bedroom (eg, work and screens), while loading in sleep-promoting cues (eg, sleep-inducing scents), to help new, desirable sleep habits stick.

5) Listen to a sleep script

Habitual thoughts set off a chain reaction that changes your emotions, body chemicals, behaviour, expectations and your sleep. A sleep script, which is a positive affirmation of how well your mind and body are preparing you for sleep, helps with this by gradually shifting your habitual sleep-related thoughts. This taps into the power of self-talk and clinical hypnosis, which are increasingly being explored by scientists, neuroscientists and medics.

Also, by listening to a sleep script during the day, you give yourself a moment to pause, creating a window for any stress to subside. I listened to myself reading a short sleep script daily, when sorting out my chronic insomnia and still rely on one as a very potent sleep habit cue.

6) Have an armchair offload

If your mind is full of worries, or all the jobs you need to do tomorrow/this week, have an armchair offload some time before bed, to let your mind think about it all and perhaps write it down. Ideally this would involve sitting in a relaxed space that isn’t your bedroom, giving you time to reflect before heading to bed, once the rush of the day, and/or TV shows are over.

Once again, it’s more impactful if you have an inkling of the biology and science going on. By giving yourself this time to think, or jot down any notes, what you’re really doing is moving worries or preoccupations from your brain’s emotional HQ, the amygdala, to your problem-solving pre-frontal cortex. What’s more, your brain will look for solutions while you dream.

7) Stare into the darkness of a pitch-black bedroom

Staring into the darkness last thing, while lying in bed, will help to increase your sleep-promoting melatonin levels, as the “hormone of sleep” is released at night when those light-sensitive photoreceptors in your eyes see that it’s dark out there.

Among other things, melatonin is also an immune system booster, so allowing your body to release as much of it as possible throughout your evening by avoiding too much bright light the closer you get to bed, is a plus in more ways than just enjoying easier, more restorative sleep.

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Source: Seven simple steps to sounder sleep | Life and style | The Guardian

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