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The Evergrande collapse and its potential impacts on the Australian market
Following the recent collapse of Chinese property giant Evergrande, Australian real estate partners have weighed in on the potential legal implications for Australian lawyers and clients.
Lauren Croft
Last month, after being named the world’s most indebted real estate firm in 2021, a Hong Kong court ordered Evergrande into liquidation, resulting in a property crisis in China and leaving 1,200 projects uncompleted.
“The collapse of Evergrande will be a huge test of the fairness for overseas creditors, which could have wider implications for foreign businesses operating in China,” he said.
“Australian companies would be very wise to take heed of the way that the foreign bond-holders and investors in Evergrande are treated and to the extent that the Hong Kong judgment is even able to be enforced over the majority of assets held in mainland China.”
Despite this, K&L Gates partner Samuel Brown told Lawyers Weekly that although there are lessons to be gleaned from the collapse, the “Australian market has a very disciplined approach to debt financing with strong regulations to minimise the risk of such collapses”.
"I don’t expect there to be any adverse fallout for the Australian market as the troubles faced by Evergrande have been known for some time, and the collapse likely anticipated,” he said.
“If anything, it could result in the freeing up of supply lines to Australian developers, which may have a positive impact on our activity levels.”
In December last year, Evergrande was granted a two-month extension to implement a plan to pay back debt to foreign investors – but were unable to present a convincing case. Their debt now stands at almost A$500 billion, as reported by news.com.au.
“There is much conjecture already that foreign creditors will have a very hard time getting any funds out of the liquidation of Evergrande; and if there is to be a bailout by the Chinese government, they will no doubt be prioritising the losses of domestic citizens over foreign creditors,” Mr Romano added.
“This would further erode international confidence for investment in China, which has the potential of diverting those foreign investment funds into safer pastures like the Australian property market that may drive demand locally in the short-to-medium term.
“At the same time, however, given the sheer size of the collapse, it is possible that the crisis could lead to a decrease in Chinese investment in Australian real estate at the same time, leading to a loss in demand that may neutralise those effects, particularly in the residential space. Chinese investment in Australian property has already been declining over the past five years due to increased taxes and other government measures.”
While Mr Romano said there would likely not be any legal implications for those in the real estate space unless they were dealing with property in the Chinese jurisdiction, the collapse should serve as a timely “reminder” for the Australian market.
“Evergrande’s collapse serves as a reminder of the vulnerabilities in relying heavily on exports to China. Australia has significantly increased its exports to China over the years, with China currently taking, I believe, around 36 per cent of Australia’s exports.
“This situation highlights the need for Australia to diversify its export markets so that we are not so easily impacted by economic instability in China.”
Lauren Croft
Lauren is a journalist at Lawyers Weekly and graduated with a Bachelor of Journalism from Macleay College. Prior to joining Lawyers Weekly, she worked as a trade journalist for media and travel industry publications and Travel Weekly. Originally born in England, Lauren enjoys trying new bars and restaurants, attending music festivals and travelling. She is also a keen snowboarder and pre-pandemic, spent a season living in a French ski resort.
