Pan Shiyi, chairman of Hong Kong-listed developer Soho China, thinks that the country’s real estate industry is headed for disaster, one that he likens to a certain famous shipwreck, and he thinks the coming crash could sink the whole economy.
Speaking at a financial forum in Beijing, the attention-seeking head of one of China’s largest commercial property firms said, “I think China’s property market is like the Titanic and it will soon hit an iceberg in front of it.”
While Pan and his wife Zhang Xin, the CEO of Soho, are known for their publicity stunts, the industry has been facing real headwinds this year with credit agency Moody’s downgrading the entire sector to negative earlier this month.
According to a report in the Wall Street Journal, Pan sees the coming crash as spreading rapidly into the finance sector which has long supported the country’s developers.
“After hitting the iceberg, the risks will not only be in the real estate sector. The bigger risk will be in the financial sector,” the Journal reported Pan as saying. The Beijing-based tycoon highlighted the heavy linkages between China’s shadow banking industry, including the many trusts, wealth management vehicles and entrusted loans which have lent cash to real estate projects that are looking increasingly risky.
Pan, who indicated later that he believed his comments to be off the record, even predicted that real estate prices would drop by 20-30 percent. After the remarks were reported in the local media, the billionaire businessman did not dispute the accuracy of the accounts.
Pan Not the Industry’s First Pessimist
Less than one month ago Mao Daqing, Vice Chairman of China Vanke also predicted tough times for the real estate industry at a private event, only to see his remarks appearing on the Internet soon thereafter.
The top of executive from China’s largest developer by sales said in at the time that China’s housing market is saturated and that there’s no chance for further price increases unless the government once again resorts to stimulus measures.
The negative remarks by Mao came just after the Shenzhen-based developer reported its first quarterly drop in profits since 2002. Soho has also struggled recently, reporting at earlier this year that its profits for the second half of 2013 were down 47 percent compared to the same period a year earlier.
Perhaps to jettison some unnecessary load before heading into a stormy market, Soho earlier this year also sold two commercial projects in Shanghai for RMB 5.23 billion ($851 million), a price well below what the company had originally asked for.