Will China’s Property Sales Plunge by One-Third?

Property sales in China could fall by one-third in 2022, spelling trouble for the country’s giant housing sector. People may lose faith in the market and pressure will increase on struggling developers to complete presold apartments.

Amid reports that the government is preparing a bailout of the sector that could cost 300bn yuan ($44bn), experts at S&P have concluded that the fall in sales will be twice as bad as they had originally forecast for this year. S&P Global Ratings now expects national property sales will fall 28%-33% in 2022.

Source: https://www.dailysabah.com

Disgruntled buyers of apartments at housing projects in more than 100 cities had banded together to withhold payments on unfinished homes. 

The strike has ratcheted up the pressure on developers, who are already facing acute liquidity problems. Many depend on customers paying upfront for homes off the plan to keep cash flowing through the business. The proceeds can be used to pay debts.

Some high-profile developers have already fallen into default, causing waves of panic in the global financial system – most notably Evergrande, the country’s second-biggest property firm. 

Separate research by the agency puts the estimated value of the loans in question at almost 1tn yuan ($144bn) and could threaten financial stability if there was a sharp drop in prices, as now seems likely amid plunging sales. A slowing economy and rising unemployment are adding to the downward pressure on sales and prices.

Local land sales are also affected as a result of the property downturn and the country’s zero Covid policy. In the first half of the year, local land sales revenue declined sharply by 31% year-on-year. The decline may be narrowed in the second half of the year, but may still stay weak at -10%, due to subdued developers’ financing.

And while S&P economists estimate about a quarter of China's GDP is affected directly and indirectly by real estate, only part of that 25% is at a risk level.

China's real estate sector has been intertwined with local governments and land use policy, making the industry's problems difficult to resolve quickly. A new bidding process for land fully took effect, he said. The new bidding process tightened the supply of land and real estate, pushing up housing prices more than speculation did

Authorities in Beijing are beginning to respond to the crisis with reports that the government has set up a multi-billion yuan fund to help bail out the stricken sector. The fund would initially be set at 80bn yuan. The state-owned China Construction Bank would contribute 50bn yuan, but the money would come from PBOC’s relending facility. If it was successful, other banks would follow suit with a target to raise up to 200-300bn yuan.

The above troubles in China will have ramification on economies like Malaysia. We need China to overcome its issues for our exports to remain robust. Meanwhile, we need to look at our property overhang and the continued development of condominiums and high-end properties. We cannot afford to have a “bailout” of our property sector.

References:

China property sales could plunge by one-third, analyst say, as crisis deepens, Martin Farrer with agencies, The Guardian, 26 July 2022-08-08

China’s property sales are set to plunge 30% - worse than 2008, S&P says, Evelyn Cheng, CNBC, 27 July 2022