China Makes Preparations For Evergrande’s Demise

SINGAPORE—Chinese authorities are asking local governments to prepare for the potential downfall of China Evergrande Group, according to officials familiar with the discussions, signalling a reluctance to bail out the debt-saddled property developer while bracing for any economic and social fallout from the company’s travails.

The officials characterised the actions being ordered as “getting ready for the possible storm,” saying that local-level government agencies and state-owned enterprises have been instructed to step in to handle the aftermath only at the last minute should Evergrande fail to manage its affairs in an orderly fashion.

They said that local governments have been tasked with preventing unrest and mitigating the ripple effect on home buyers and the broader economy, for example by limiting job losses—scenarios that have grown in likelihood as Evergrande’s situation has worsened.

Evergrande faces a series of bond payments in the coming weeks, including one closely watched deadline Thursday for an interest payment on an offshore bond.

Local governments have been ordered to assemble groups of accountants and legal experts to examine the finances around Evergrande’s operations in their respective regions, talk to local state-owned and private property developers to prepare to take over local real-estate projects and set up law-enforcement teams to monitor public anger and so-called “mass incidents,” a euphemism for protests, according to the people.

Spokespeople for Evergrande and the information office of China’s cabinet, the State Council, didn’t immediately respond to requests for comment. Last week, Evergrande said it had hired financial advisers, and reiterated that default was a risk. It warned of tremendous pressure on its cash flow and liquidity, but said it was “strengthening implementation of measures to ease the liquidity crisis,” and said the advisers would explore ways to reach “an optimal solution for all stakeholders.”

Evergrande is a 25-year-old developer based in the southern metropolis of Shenzhen. It has projects—about 800 in progress and spread across more than 200 cities—in every province of mainland China, according to its most recent annual report. Its deepening financial troubles have rattled investors, employees, suppliers and home buyers, and begun to spill over into other parts of the Chinese economy.

The company said work on some of its real-estate projects was suspended after it delayed payment to suppliers and contractors. Some unpaid contractors and would-be homeowners have protested at Evergrande’s offices.

China’s top financial regulator, the Financial Stability and Development Committee, earlier this month told provincial governments to set up working groups to monitor social and economic instability around Evergrande, some of the people said. The Evergrande situation comes ahead of a closely watched leadership meeting next year.

Policy makers are also considering gradually easing some property curbs in smaller Chinese cities, such as making ownership of a second home easier, according to one of the people. They could also moderate some of the stringent deleveraging measures on property developers that helped push heavily indebted Evergrande toward the precipice in recent months, this person said. Even so, any such moderation of the policies would be confined to smaller cities, and wouldn’t change the larger nationwide campaign to rein in the property sector, this person said.

Given the importance of the property sector to the country’s economy, Beijing “will need to prevent a fast and sharp housing deterioration,” Morgan Stanley told clients this week. Possible easing measures, the investment bank said, include boosting fiscal spending, further cutting the amount in reserves that banks must hold and making mortgage loans easier to obtain.

Real estate directly accounts for 7.3% of national gross domestic product, according to official figures, though analysts say that real estate and real-estate-linked industries collectively drive nearly one-third of economic output.

China has struggled for years to calibrate its housing policies. Prices have marched steadily higher in the years since the real-estate market was liberalized more than two decades ago. In recent years, prices had risen out of reach for many households, raised corporate and household debt levels and sparked concerns about a debilitating burst bubble.

In recent months, stabilizing the market has become a priority for leader Xi Jinping, with officials repeating the mantra: “Homes are for living in, not for speculation.”

The latest buying frenzy began in early 2020, as the government turned to property investment to help offset a pandemic-induced blow to exports and domestic spending. By the late summer last year, authorities, fearing that the housing market had become overheated, introduced a set of policies to cool down the sector—and, in particular, to rein in the heavy borrowing of property developers.

Most prominent among the measures last year was a “three red lines” policy that requires developers to bring down debt levels below certain thresholds before they are able to borrow more money from financial institutions.

To comply, Evergrande has scrambled to unload some of the shares it owns in its noncore assets, including parts of its electric-vehicle business, whose market value peaked at more than $80 billion this year before collapsing amid concerns about the financial health of the parent company. Earlier this summer, Evergrande also sold stakes in its internet business.

Now, with the market bracing for the possibility of a disorderly collapse of Evergrande, officials are likely to draw on their experience managing similar blowups, most recently organizing a bailout of China Huarong Asset Management Co., the largest Chinese manager of nonperforming loans and other bad debt. Earlier this year, a Chinese court ruled to begin bankruptcy proceedings to embattled Chinese conglomerate HNA Group Co.

In a Tuesday memo to employees for China’s Mid-Autumn Festival, Evergrande’s founder and chairman, Hui Ka Yan, acknowledged the company’s unprecedented difficulties, but vowed to push through the pain.

“I firmly believe that Evergrande people’s spirit of never admitting defeat, and becoming stronger when the going gets tough, is our source of strength in overcoming all difficulties!” wrote the 62-year-old Mr. Hui.

Fearing a housing bust that could trigger social unease, one district-level government in the southwestern province of Guizhou urged officials to ensure migrant workers employed on Evergrande projects received their salaries, according to a copy of an official notice viewed by The Wall Street Journal.

The notice, which was sent to a group of local officials assigned to deal with potential Evergrande fallout, called on cadres to “attach great importance to the seriousness of Evergrande’s problems.” Local authorities should “dare to act, cooperate closely and make every effort to resolve Evergrande’s debt crisis,” it said.

Guizhou’s provincial government didn’t respond for comment.

PARIS —Paris has long been a byword for luxurious living. The traditional components of the upscale home, from parquet floors to elaborate moldings, have their origins here. Yet settling down in just the right address in this low-rise, high-density city may be the greatest luxury of all.

Tradition reigns supreme in Paris real estate, where certain conditions seem set in stone—the western half of the city, on either side of the Seine, has long been more expensive than the east. But in the fashion world’s capital, parts of the housing market are also subject to shifting fads. In the trendy, hilly northeast, a roving cool factor can send prices in this year’s hip neighborhood rising, while last year’s might seem like a sudden bargain.

This week, with the opening of the Olympic Games and the eyes of the world turned toward Paris, The Wall Street Journal looks at the most expensive and desirable areas in the City of Light.

The Most Expensive Arrondissement: the 6th

Known for historic architecture, elegant apartment houses and bohemian street cred, the 6th Arrondissement is Paris’s answer to Manhattan’s West Village. Like its New York counterpart, the 6th’s starving-artist days are long behind it. But the charm that first wooed notable residents like Gertrude Stein and Jean-Paul Sartre is still largely intact, attracting high-minded tourists and deep-pocketed homeowners who can afford its once-edgy, now serene atmosphere.

Le Breton George V Notaires, a Paris notary with an international clientele, says the 6th consistently holds the title of most expensive arrondissement among Paris’s 20 administrative districts, and 2023 was no exception. Last year, average home prices reached $1,428 a square foot—almost 30% higher than the Paris average of $1,100 a square foot.

According to Meilleurs Agents, the Paris real estate appraisal company, the 6th is also home to three of the city’s five most expensive streets. Rue de Furstemberg, a secluded loop between Boulevard Saint-Germain and the Seine, comes in on top, with average prices of $2,454 a square foot as of March 2024.

For more than two decades, Kyle Branum, a 51-year-old attorney, and Kimberly Branum, a 60-year-old retired CEO, have been regular visitors to Paris, opting for apartment rentals and ultimately an ownership interest in an apartment in the city’s 7th Arrondissement, a sedate Left Bank district known for its discreet atmosphere and plutocratic residents.

“The 7th was the only place we stayed,” says Kimberly, “but we spent most of our time in the 6th.”

In 2022, inspired by the strength of the dollar, the Branums decided to fulfil a longstanding dream of buying in Paris. Working with Paris Property Group, they opted for a 1,465-square-foot, three-bedroom in a building dating to the 17th century on a side street in the 6th Arrondissement. They paid $2.7 million for the unit and then spent just over $1 million on the renovation, working with Franco-American visual artist Monte Laster, who also does interiors.

The couple, who live in Santa Barbara, Calif., plan to spend about three months a year in Paris, hosting children and grandchildren, and cooking after forays to local food markets. Their new kitchen, which includes a French stove from luxury appliance brand Lacanche, is Kimberly’s favourite room, she says.

Another American, investor Ashley Maddox, 49, is also considering relocating.

In 2012, the longtime Paris resident bought a dingy, overstuffed 1,765-square-foot apartment in the 6th and started from scratch. She paid $2.5 million and undertook a gut renovation and building improvements for about $800,000. A centrepiece of the home now is the one-time salon, which was turned into an open-plan kitchen and dining area where Maddox and her three children tend to hang out, American-style. Just outside her door are some of the city’s best-known bakeries and cheesemongers, and she is a short walk from the Jardin du Luxembourg, the Left Bank’s premier green space.

“A lot of the majesty of the city is accessible from here,” she says. “It’s so central, it’s bananas.” Now that two of her children are going away to school, she has listed the four-bedroom apartment with Varenne for $5 million.

The Most Expensive Neighbourhoods: Notre-Dame and Invalides

Garrow Kedigian is moving up in the world of Parisian real estate by heading south of the Seine.

During the pandemic, the Canada-born, New York-based interior designer reassessed his life, he says, and decided “I’m not going to wait any longer to have a pied-à-terre in Paris.”

He originally selected a 1,130-square-foot one-bedroom in the trendy 9th Arrondissement, an up-and-coming Right Bank district just below Montmartre. But he soon realised it was too small for his extended stays, not to mention hosting guests from out of town.

After paying about $1.6 million in 2022 and then investing about $55,000 in new decor, he put the unit up for sale in early 2024 and went house-shopping a second time. He ended up in the Invalides quarter of the 7th Arrondissement in the shadow of one Paris’s signature monuments, the golden-domed Hôtel des Invalides, which dates to the 17th century and is fronted by a grand esplanade.

His new neighbourhood vies for Paris’s most expensive with the Notre-Dame quarter in the 4th Arrondissement, centred on a few islands in the Seine behind its namesake cathedral. According to Le Breton, home prices in the Notre-Dame neighbourhood were $1,818 a square foot in 2023, followed by $1,568 a square foot in Invalides.

After breaking even on his Right Bank one-bedroom, Kedigian paid $2.4 million for his new 1,450-square-foot two-bedroom in a late 19th-century building. It has southern exposures, rounded living-room windows and “gorgeous floors,” he says. Kedigian, who bought the new flat through Junot Fine Properties/Knight Frank, plans to spend up to $435,000 on a renovation that will involve restoring the original 12-foot ceiling height in many of the rooms, as well as rescuing the ceilings’ elaborate stucco detailing. He expects to finish in 2025.

Over in the Notre-Dame neighbourhood, Belles demeures de France/Christie’s recently sold a 2,370-square-foot, four-bedroom home for close to the asking price of about $8.6 million, or about $3,630 a square foot. Listing agent Marie-Hélène Lundgreen says this places the unit near the very top of Paris luxury real estate, where prime homes typically sell between $2,530 and $4,040 a square foot.

The Most Expensive Suburb: Neuilly-sur-Seine

The Boulevard Périphérique, the 22-mile ring road that surrounds Paris and its 20 arrondissements, was once a line in the sand for Parisians, who regarded the French capital’s numerous suburbs as something to drive through on their way to and from vacation. The past few decades have seen waves of gentrification beyond the city’s borders, upgrading humble or industrial districts to the north and east into prime residential areas. And it has turned Neuilly-sur-Seine, just northwest of the city, into a luxury compound of first resort.

In 2023, Neuilly’s average home price of $1,092 a square foot made the leafy, stately community Paris’s most expensive suburb.

Longtime residents, Alain and Michèle Bigio, decided this year is the right time to list their 7,730-square-foot, four-bedroom townhouse on a gated Neuilly street.

The couple, now in their mid 70s, completed the home in 1990, two years after they purchased a small parcel of garden from the owners next door for an undisclosed amount. Having relocated from a white-marble château outside Paris, the couple echoed their previous home by using white- and cream-coloured stone in the new four-story build. The Bigios, who will relocate just back over the border in the 16th Arrondissement, have listed the property with Emile Garcin Propriétés for $14.7 million.

The couple raised two adult children here and undertook upgrades in their empty-nester years—most recently, an indoor pool in the basement and a new elevator.

The cool, pale interiors give way to dark and sardonic images in the former staff’s quarters in the basement where Alain works on his hobby—surreal and satirical paintings, whose risqué content means that his wife prefers they stay downstairs. “I’m not a painter,” he says. “But I paint.”

The Trendiest Arrondissement: the 9th

French interior designer Julie Hamon is theatre royalty. Her grandfather was playwright Jean Anouilh, a giant of 20th-century French literature, and her sister is actress Gwendoline Hamon. The 52-year-old, who divides her time between Paris and the U.K., still remembers when the city’s 9th Arrondissement, where she and her husband bought their 1,885-square-foot duplex in 2017, was a place to have fun rather than put down roots. Now, the 9th is the place to do both.

The 9th, a largely 19th-century district, is Paris at its most urban. But what it lacks in parks and other green spaces, it makes up with nightlife and a bustling street life. Among Paris’s gentrifying districts, which have been transformed since 2000 from near-slums to the brink of luxury, the 9th has emerged as the clear winner. According to Le Breton, average 2023 home prices here were $1,062 a square foot, while its nearest competitors for the cool crown, the 10th and the 11th, have yet to break $1,011 a square foot.

A co-principal in the Bobo Design Studio, Hamon—whose gut renovation includes a dramatic skylight, a home cinema and air conditioning—still seems surprised at how far her arrondissement has come. “The 9th used to be well known for all the theatres, nightclubs and strip clubs,” she says. “But it was never a place where you wanted to live—now it’s the place to be.”

With their youngest child about to go to college, she and her husband, 52-year-old entrepreneur Guillaume Clignet, decided to list their Paris home for $3.45 million and live in London full-time. Propriétés Parisiennes/Sotheby’s is handling the listing, which has just gone into contract after about six months on the market.

The 9th’s music venues were a draw for 44-year-old American musician and piano dealer, Ronen Segev, who divides his time between Miami and a 1,725-square-foot, two-bedroom in the lower reaches of the arrondissement. Aided by Paris Property Group, Segev purchased the apartment at auction during the pandemic, sight unseen, for $1.69 million. He spent $270,000 on a renovation, knocking down a wall to make a larger salon suitable for home concerts.

During the Olympics, Segev is renting out the space for about $22,850 a week to attendees of the Games. Otherwise, he prefers longer-term sublets to visiting musicians for $32,700 a month.

Most Exclusive Address: Avenue Junot

Hidden in the hilly expanses of the 18th Arrondissement lies a legendary street that, for those in the know, is the city’s most exclusive address. Avenue Junot, a bucolic tree-lined lane, is a fairy-tale version of the city, separate from the gritty bustle that surrounds it.

Homes here rarely come up for sale, and, when they do, they tend to be off-market, or sold before they can be listed. Martine Kuperfis—whose Paris-based Junot Group real-estate company is named for the street—says the most expensive units here are penthouses with views over the whole of the city.

In 2021, her agency sold a 3,230-square-foot triplex apartment, with a 1,400-square-foot terrace, for $8.5 million. At about $2,630 a square foot, that is three times the current average price in the whole of the 18th.

Among its current Junot listings is a 1930s 1,220-square-foot townhouse on the avenue’s cobblestone extension, with an asking price of $2.8 million.