China’s Skyscraper Boom Comes Crashing Down Amid Developer Default

China’s Skyscraper Boom Comes Crashing Down Amid Developer Default

The Financial Times (FT) is reporting that a subsidiary of China’s largest construction company recently halted work on the nation’s tallest skyscraper after the developer defaulted on a payment.

The default comes at a time when China’s economy is decelerating as Beijing conducts economic reforms to transition from an export-based economy to a more domestic, consumer-driven economy. Also, trade tensions and global debt saturation have been other leading causes for China’s slowdown.

FT obtained a copy of a letter that specified China Construction Third Engineering Bureau Co would halt construction on a 1,558 feet skyscraper in the central city of Wuhan. Details within the letter specified how Greenland Group, China’s largest developer, had failed to make a “significant” payment to fund the project.

As China’s economic growth slumps to three-decade lows, credit for property developers has been turned off. FT also learned that construction of more than a dozen skyscrapers, some more than 900 feet tall, have been postponed or behind schedule in 2019.

Li Guozheng, an analyst at China Index Academy, a property consultancy, said Greenland’s business model is highly flawed because it doesn’t take into account an economic downturn.

The developer relied on selling expensive residential apartments to support its mega building projects, but since the housing market has cooled, the developer has run into financial hardships.

“There is a fundamental problem with Greenland’s business model,” said Li. “It doesn’t take into account an economic downturn.”

The Skyscraper Index has been calling market tops for over 100 years. Maybe the latest news coming from China is an ominous sign for global equities.

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