Commentary: Evergrande woes could spread to Southeast Asia property

In the most severe stress scenario where non-performing loans in property development rise by 15 percentage points and mortgages rise by 10 percentage points, China’s over 4,000 banks still have ample available capital. At an average capital adequacy ratio that drops to 12.3 per cent if this happens, banks should have sufficient cushion to stomach a reasonable amount of losses.

Third, banks have been cutting their exposure to property loans since last year, according to JP Morgan.

IMPACT ON OVERSEAS ASEAN PROJECTS AND DEVELOPERS

The bigger worry business investors should have is the broadening of Evergrande’s troubles to China’s real estate sector that could impact both Chinese property developments abroad and foreign investments in the industry.

Although Evergrande has no known projects in Southeast Asia, other Chinese developers black-listed by Chinese authorities have expanded into Southeast Asia in recent years.

China Fortune Land Development (CFLD), the first major Chinese developer to fall victim to the “three red line” policy and defaulted on US$3.6 billion worth of bonds so far this year, has been involved in many major Indonesian projects since 2015.

Guangzhou R&F properties, which has housing projects in Malaysia, including the Princess Cove luxury condominiums in Johor Bahru, is under increasing funding stress after being downgraded by Moody’s and has begun disposing assets last year to boost liquidity.

Country Garden, China’s largest property developer by sales, flagged for violating one of the three red lines, has two projects in Malaysia and three projects in Indonesia as of June 2020.

In Singapore, four of the largest Chinese developers in the republic – Logan, QingJian, Kingsford and CSC Land Group – have invested over S$8 billion for land bids though none have violated any red lines.