China’s property woes hit Country Garden By Reuters

By Laurie Chen

TIANJIN, China (Reuters) – At an unfinished Country Garden residential complex on the outskirts of the northern Chinese metropolis of Tianjin, construction has slowed to a dull whirr and a few idle workers roam a near-empty site.

“They haven’t paid us since Chinese New Year (in January). We are all worried,” said a labourer surnamed Wang, 50, who said he had stopped work at the Yunhe Shangyuan site last week.

The sprawling complex is one of two projects Reuters visited on Friday in Tianjin, a port city of 14 million people about 135 km (84 miles) southeast of Beijing. Both sites are run by Country Garden, China’s largest developer by sales volume before this year, now mired in a debt crisis threatening to spill over to the wider economy.

Construction had partially or fully stopped at both sites – the larger one with a few rows of unfinished five-storey apartment blocks and the other with lifeless cranes and thick green scaffolding hanging over skeletal high-rises. Workers at dorms on the sites complained of months without pay.

“I’m under a lot of pressure,” said a worker at the Yunhe Shangyuan site surnamed Wei, also in his 50s, who added that he had only received a one-off living stipend of 4,500 yuan ($618) so far this year.

“I have a wife and kid who’s about to return to school, as well as elderly parents … Workers can’t live on this.”

Once considered one of the more financially sound developers, Country Garden is now a bellwether of how the cycle has turned for developers.

Its financial woes have added to the debt crisis in China’s real estate sector, which accounts for roughly a quarter of the world’s second-largest economy, currently losing steam amid a housing slump and weak consumer spending.

A representative of Country Garden’s Yunhe Shangyuan project said in a Wechat statement its “registered employees” were all being paid.

At the Yunjing Huating site, the government in June ordered construction to be suspended to fix management problems, a project representative told Reuters in a separate statement. It has since passed inspection and work is expected to resume next week, the person said, adding the suspension would have no impact on the targeted completion date of October 2024.

Some workers are not employed directly by the developer, the Yunjing Huating representative said, but by its contractor, which “has promised to pay the workers’ wages by the end of this month”.

The project contractor, Shenyang Tengyue Construction, did not pick up calls from Reuters or respond to emails seeking comment.

The housing ministry did not comment on Reuters queries about halting of construction in the property sector in general or Country Garden in particular.

UNFINISHED HOMES

Country Garden has nearly 1 million homes to complete, according to estimates from Japanese investment bank Nomura. It has not publicly acknowledged whether any of its projects have halted construction due to financial constraints.

In an exchange filing on Aug. 10, Country Garden said it would “spare no effort to ensure delivery” of apartments and that it would “ensure the operation of projects nationwide” to fulfill its commitment to home buyers.

Country Garden built its success by quickly selling a large number of units for low margins and by promising “five-star living” in less popular, smaller cities.

Tianjin has about a dozen Country Garden projects, with the majority finished and delivered, said Gao Fei, investment advisory manager at the Tianjin branch of Centaline Property Agency.

Gao said halted construction projects were “relatively rare” in the city, representing about a dozen out of 300 sites for sale, but “there are indeed projects whose development progress has slowed down”.

“In China, it is a common phenomenon because now all developers control the rhythm of construction based on the sales rate … so once sales slow down, so will construction,” Gao told Reuters.

Confidence in the sector took a big hit last year after many Chinese homebuyers threatened to stop repaying mortgages, as developers stopped building pre-sold housing projects due to strapped liquidity and strict COVID-19 restrictions.

China’s real estate market slightly rebounded in the first quarter of 2023 but transaction volumes have since declined, with the majority of city housing markets remaining in a “depressed” state, said Gao.

“We have seen that many home buyers are affected by a lack of income, and their home buying choices and what they can afford have been impacted in turn.”