Kaisa Project Frozen in Hangzhou – More Cities Could Follow

Government bans on property sales are no longer confined to Shenzhen, as real estate developer Kaisa now sees its troubles spreading to other cities, and reports indicate that a Shanghai property developer has also had projects frozen.

According to a report in the Wall Street Journal yesterday, the government in Hangzhou has blocked sales of nearly all of the apartments at a 749-unit development project belonging to Kaisa in the eastern Chinese city.

The sales freeze came during the same week that the courts of Shenzhen moved to freeze bank accounts belonging to Kaisa, and appears to be related to legal maneuvers by the troubled developer’s creditors to seize assets.

And Kaisa was not alone in its eastern China misery, as it was revealed that Glorious Property, the real estate developer founded by disgraced billionaire Zhang Zhirong, found itself in trouble in Shanghai.

Cases From Creditors Likely Behind Hangzhou Freeze

Kaisa’s Shenzhen problems seem to rapidly spreading nationwide, as evidenced both with its Hangzhou challenges and with the collapse of a project sale in Shanghai last week.

After first defaulting on a $51.6 million loan from HSBC, and then missing interest payments on a $500 million bond, Kaisa had been attempting to sell at 90,000 square metre Shanghai development to Vanke to raise badly needed cash.

However, that asset sale fell through after it became apparent that legal cases filed against Kaisa by its creditors in Shenzhen were requesting the seizure of Kaisa assets nationwide.

According to an article in the People’s Daily, the cases filed by 19 financial institutions in the Shenzhen courts sought to seize Kaisa assets in Shanghai, Zhuhai, Dalian, Huizhou, Suzhou, Shenzhen and Hangzhou – along with other cities.

More specifically, the People’s Daily account stated that a subsidiary of domestic shadow banking firm AJ Trust had applied to the courts of Shanghai on January 12th to have assets belonging to Kaisa’s Hangzhou subsidiary frozen, and the court had accepted AJ Trust’s request on January 15th.

Kaisa Problems Could Spread Further

The Journal story said that the Hangzhou government gave no explanation for the sales freeze on Kaisa’s Xixi Puyuan project. In Shenzhen, where Kaisa has struggled to deal with the burden of having sales blocked at four properties since December, the city government has so far given no explanation for the administrative maneuver. Kaisa did not comment publicly on its new Hangzhou troubles.

Kaisa was the first real estate developer to report having its projects frozen in Shenzhen, although a total of six real estate firms now appear to have sales at some projects blocked at least temporarily at this point.

Even without further comment from Kaisa or the government, with the developer owning projects in many cities across China, we can expect that creditors, alarmed by the company’s inability to pay its bills, are already pursuing cases against Kaisa projects in all of these cities.

Glorious Projects Also Frozen

While Kaisa was busy getting into trouble in Hangzhou, competitor Glorious Property Holdings was suffering similar problems in its hometown of Shanghai.

According to an account in local news website Jiemian.com, two of Glorious projects in Shanghai have been frozen by a local court, and home buyers have been alerted that their new apartments will not be completed on schedule.

Glorious has been among the shakiest of Chinese developers for at least a year, and the company’s founder, Zhang Zhirong, resigned from his chairmanship of the property firm in 2012 as part of a settlement of an insider trading case in the US.