For a while now, China’s housing market has been struggling. Starting with Evergrande, developers low on cash began defaulting on loans and failing to finish projects. Then, some homeowners stopped paying their mortgages on unfinished homes, making things even worse. Because of slumping new-home sales, defaults, market sell-offs and property-related sector bonds having the worst monthly losses, investors’ confidence in the property market has been shattered. The bubble has burst.
Then, last Friday, Longfor’s founder and chairwoman, Wu Yajun, quit her own company. The news triggered a big sell-off on Monday, sending the company’s stocks tumbling. Even though it paid off a debt early and Wu’s family bought a ton of shares to shore up confidence – the Hang Seng Mainland Properties Index fell 6.5% the day the news broke, and Longfor’s shares closed down almost 24%.
The billionaire chairwoman said she departed for health reasons, but her exit comes just a few weeks after Soho China’s Pan Shiyi quit. So, the timing has cast more doubt on China’s property sector. Longfor’s new chairman, Chen Xuping, assured that Wu’s departure reflects the company’s strategy. He said they’re optimistic about the real estate industry, and the company’s “business operation remains stable.” Citi analysts also weighed in, saying that investors overreacted and Wu’s resignation is in line with the typical women’s retirement age in China.
“It’s very likely that we will see more mainland property founders leaving important roles in their firms,” said Kakei Lam, fund investment officer at Metaverse Securities in Hong Kong. “The golden age of Chinese property is gone, and they probably don’t see too much they can do to help.”
“It’s definitely a negative for the company,” said Steve Wong, an analyst at Essence International Financial Holdings. “For whatever reasons, it doesn’t make sense for the chairman to suddenly quit during a real estate crisis. Maybe Wu realized there’s little she can do given the situation. Even if this year’s debt repayment is settled, next year is still going to look very difficult for Longfor.”
“Until now we don’t’ see any turning point for sales of the whole industry. Although every city is relaxing rules and has encouraging policies, from the front line we feel it’s not optimistic,” said a senior executive of Greenland.
“The guaranteed-note sales could ease refinancing pressure slightly, but it won’t be able to hold up market confidence for long,” said Yang Hao, a bond analyst at Nanjing Securities Co. “Ultimately, investors need positive signs from developers’ fundamentals.”