China Property Market Struggles: A linchpin of the nation’s economy, remains stubbornly lethargic despite a series of government stimuli. This persistent sluggishness is keeping both investors and potential homebuyers in a state of flux. The property sector contributes a quarter of China’s economic output, but even in major cities like Beijing and Shenzhen, sales have remained stagnant.
The uncertainty stemming from the current economic climate has made homebuyers wary. For instance, Daniel Song, a 28-year-old computer programmer in Beijing, had considered purchasing an apartment earlier this year but abandoned the idea due to concerns about financial security.
To tackle the deepening debt crisis in the property sector, the Chinese government has implemented several stimulus measures aimed at reinvigorating the industry. This comes in response to liquidity problems faced by companies like China Evergrande Group and Country Garden.
However, these support measures have yet to significantly sway potential buyers, who are grappling with low confidence. Official data from September reveals that China’s new home prices have fallen for the third consecutive month, dipping by 0.2% from August, a period traditionally associated with peak home buying.
Andy Lee, CEO of Centaline China, noted, “Much of the easing policies have lowered the buying costs but done little to create new demand. The overall size of the pie is still the same,” referring to the market demand.
Also Read: China Property Sector Debt Woes Deepen as Developers Face Sales Slump and Bond Defaults
Real estate developers foresee sales remaining lackluster in October. While potential buyers have been touring sites, these visits have not translated into actual purchases. An official from a major developer disclosed that their sales during the Golden Week were 20% lower than the previous year. Although sales improved slightly compared to September, they dropped again after the holiday period ended.
As 2022 unfolds, the industry’s initial expectations of a poor first half and a more promising second half have been far from realized. Some argue it’s been a bad first half followed by an even more dismal second half.
Nomura, an international financial services group, is cautious about calling a bottom for the property sector. They suggest that recent easing measures may have led to an oversupply of homes, adding further pressure to prices in a market with weak demand.
Performance varies across different cities, with new home prices increasing in Beijing and Shanghai but decreasing in Shenzhen and Guangzhou in September. Smaller cities grappling with excess supply continue to face tepid demand.
S&P Global Ratings has adjusted its forecasts, now expecting a more substantial decline in China’s property sales, with a projected drop of 10-15% this year compared to 2022, as opposed to the earlier projection of a mid-single-digit percentage decline. They also anticipate a further 5% drop in sales in 2024.
Doris Dong, a 30-year-old housewife in Beijing, reflects the sentiment of many in these uncertain times, stating, “In a bad real estate market and a dismal economy, I don’t have that much desire to buy a new house, and I want to keep the money in my hands.”
Our Reader’s Queries
What is causing difficulties in China’s real estate market?
China’s population growth has slowed down, and the Covid-19 pandemic has further impacted the country’s consumers. Additionally, the government has taken measures to curb risky practices in the real estate industry. As a result, developers are now facing a significant amount of debt and an oversupply of housing units with fewer buyers.
What is happening with China’s property market?
According to a recent report by Nomura analysts, the average price for existing homes in 70 major cities dropped by 0.6% in October compared to the previous month. This decline was led by China’s largest cities, and was slightly higher than the 0.5% drop seen in September. Official data was used to compile this report.
What are the risks of real estate in China?
Nearly half of Chinese real estate firms face the possibility of debt distress, according to two widely used financial indicators. The debt-service coverage ratio, which compares net operating income to scheduled principal and interest payments, and the interest coverage ratio, which measures earnings before interest and taxes against interest payments, both suggest that around 45% of Chinese property companies are at risk. This highlights the potential challenges facing the Chinese real estate market and the need for careful financial management in the sector.
Is China’s property crisis upending tens of thousands of lives?
The property crisis in China is causing immense upheaval for tens of thousands of people. One of the country’s biggest developers is on the brink of default, which is exacerbating the difficulties faced by homebuyers, workers, and investors who are already struggling. This comes at a time when the economy desperately needs a boost, making the situation even more dire.