Chinese real estate is still immersed in an implosion that seems under control, but which increasingly runs the risk of derailing the economy. Developers and construction companies, in an attempt to obtain liquidity, are resorting to offers and discounts that threaten generate a domino effect in Chinese housing. Against this backdrop, housing prices in China fell in October at the fastest rate in eight years. Specifically, the decrease was 0.4%, a figure that seems small, but which belongs to the inter-monthly data (from one month to the next).
New home prices in China’s main cities fell in October for the fourth consecutive month, correcting 0.4% compared to the previous month, according to official data published today, representing the largest decline since February 2015 due to the real estate crisis. If this monthly figure is annualized, the drop in housing would already be close to 5%. The largest real estate market in the world is in the midst of a correction.
“The lackluster property price data reflects a fluctuating housing market, but it is also result of large discounts offered by developers and local governments“, indicated the director of the specialized consulting firm E-house China, Yan Yuejin, quoted by the Hong Kong newspaper South China Morning Post.
This indicator published by the National Statistics Office (ONE) adds to the one released yesterday, which points to a 9.3% year-on-year drop in investment destined for real estate development in the first ten months of the year.
This drop adds to the evidence of a persistent real estate crisis, after this week’s official figures have shown a contraction in sales and a deepening of the fall in real estate investment. The new stimulus measures implemented in the main cities seem to have done little to reverse the correction of the sector, which is hindering China’s economic recovery, the agency says. Bloomberg.
The mirage of recovery
The housing market’s brief rebound earlier this year after China’s post-Covid reopening “turned out to be short-lived,” says Chen Wenjing, associate director of research at China Index Holdings. “Homebuyers are deterred by falling incomes and uncertain housing market prospects.”
Prices have also fallen 0.58% in the secondary market, the biggest decline since October 2014. In the latest measure to support the real estate sector, Beijing is planning to provide at least 1 trillion yuan (135 billion euros) of low-cost financing for affordable housing and small town renewal programs, Bloomberg News reported this week.
Although the details of the new plan are still unclear, some economists say it may be less effective than previous efforts. The new programs would be implemented primarily in some of the largest metropolitan areas, outside of the lower-tier cities where the crisis is most severe.
The real estate crisis is contagious
China’s real estate crisis has affected many of the largest developers, who have been struggling to pay off their debts and complete projects since the credit crisis hit three years ago. China Vanke, one of the few remaining investment-grade construction companies in the country, has seen its dollar bonds fall in recent weeks following the default of industrial giant Country Garden Holdings. Although Vanke seemed solvent and out of danger, the contagion of the crisis has meant that local authorities have had to come out with unusually strong support from the local government.
“The housing decline remains the biggest hurdle amid growing credit risk among developers,” Larry Hu, head of China economics at Macquarie Group, said in a note this week.
Housing prices still have a way down. Nomura, a Japanese investment bank, estimates that There are still about 20 million homes sold off plan that have not been built or whose completion is being delayed, also pointing to a financing gap of about 3.2 trillion yuan (440.82 billion dollars, 406.634 million euros) to complete these developments.
One of the big slowdown factors for the Chinese economy is the crisis in the real estate sector, whose weight on the national GDP -adding indirect factors- is estimated at around 30%according to Capital Economics.