By the time Evergrande started selling stock to the public in Hong Kong in 2009, it had already faced questions about its voracious expansion. Foreign investors, many of them American private equity funds, hedge funds and Wall Street banks, had shoveled money into real estate companies a few years earlier, and the debt was piling up. Mr. Hui had hoped to raise $1.5 billion, but the company ended up with $722 million from listing its shares.
Around the world, a global financial crisis was reverberating, one that started with a plunge in housing prices in the United States. But in China, after a short and steep downturn, the government pumped $500 billion into building roads and railways, juicing growth and allowing China to emerge from the crisis before other countries. By listing its shares in Hong Kong, Evergrande had access to money outside China to buy land in China. Dozens of other developers were doing the same thing. Three of them — Kaisa Group, Yuzhou Properties and Fantasia Holdings — raised money over the same few weeks as Evergrande. They have all since defaulted.
By 2010, the market was showing signs of overheating. Housing prices were rising faster than the average household income. Soon economists were warning that China’s housing market was overpriced, supply was overbuilt and its developers were overleveraged.
Chinese home buyers continued to flock to construction projects anyway. As cities filled up with new apartment blocks, developers looked farther afield to satellite towns and more rural areas.
Prospective buyers were led through showrooms and model apartments and then handed a piece of paper to sign. For a third of the price of an apartment, and sometimes even more, they bought a promise, an apartment not yet built. For households with few places to store their wealth, it was difficult to imagine how a bet on real estate could go wrong.