After several years of uncertainty, Hong Kong’s courts have issued a liquidation order to Chinese property giant Evergrande on Monday after it failed to reach a restructuring deal with creditors. Alvarez & Marsal Asia has been appointed as liquidators to enforce the plan in China. Evergrande’s shares dropped by more than 20 percent to HK$ 0.16 ($0.02; €0.019) before trading was halted on Monday.

Evergrande’s collapse was a known possibility for some time and the real estate market has largely factored such an eventuality in. The firm’s crisis started as early as 2021 when it missed two offshore bond coupon payments. Since then, it has missed more payments and, saddled with more than $300 billion in debt, become the poster child of China’s real estate problems.

A foreign real estate investor in China called the announcement “beyond yesterday’s news” and highlighted how the liquidation order barely registered on local indices. Indeed, despite the headlines, Hong Kong’s Hang Seng Index, which comprises a large number of Chinese companies and, therefore, reflects investor sentiment towards China markets, closed 0.8 percent higher on Monday.

While the liquidation represents another negative development for China’s real estate market, it is important to note that many investors had already shifted their focus away from China, even before the announcement. Private real estate sector association ANREV’s latest investment intention survey showed the intention to invest in China dropped significantly to 19 percent from a seven-year average of 40 percent.

But the shift is not solely caused by China’s real estate issues. Ongoing geopolitical tensions and a slowdown in economic growth are also being factored into investment decisions.

On the geopolitical front, tension between China and the US will be further tested by the upcoming US presidential result following the Taiwan election last month. On the economic growth front, India has overtaken China as the top destination for emerging markets in Asia-Pacific, according to broker CBRE’s latest investment intention survey. India and China’s economies were expected to grow at 6.3 percent and 4.2 percent respectively in 2024, according to The International Monetary Fund forecasts.

Still, investors will be more cautious about investing in China due to a potential “snowball effect” on other distressed developers, economists are noting. Country Garden Holdings is an example of another high profile and large Chinese real estate developer that has come under the spotlight following its default on a bond in October 2023.

And while it is tempting to imagine that the complicated liquidation process could throw up attractive distressed opportunities for those still with a conviction to Chinese real estate and the means to pursue them, many of the assets to go would be for-sale residential – not a sector typically associated with private real estate, as one manager told us this week.

So, few will be surprised by Monday’s news, and the uncertainty surrounding its potential implications is unlikely to improve investor sentiment towards this troubled market.