Chinese developers in “survival mode” reduce their real estate investments

  • Real estate investment in July fell 12.3% y/y
  • New construction starts fall at fastest pace in nearly a decade

BEIJING, Aug 15 (Reuters) – Chinese developers in “survival mode” slashed real estate investment in July as new-build starts suffered their biggest drop in nearly a decade, suggesting that the liquidity-struggling sector is not about to turn the page anytime soon.

China’s property market, which accounts for about a quarter of the economy, has been trapped in a capital crunch since the summer of 2020, leading some cash-strapped developers to default on debt and struggle to carry out their projects. Buyer mistrust has also dampened new developer investment.

Real estate investment in July fell 12.3% year-on-year, the biggest drop in 2022, while new construction starts by floor area fell 45.4%, the biggest drop since January-February 2013, according to Reuters calculations based on data from the National Bureau of Statistics (NBS) on Monday.

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“Everyone except state-owned companies is in survival mode,” said a senior official at a Shenzhen-based developer, speaking on condition of anonymity.

“We are all waiting for a recovery and trying to accelerate sales, reduce costs and buy less land. But ultimately sales depend on end users.”

Cash-strapped property companies have been suffering from tight credit conditions since 2020 after regulators issued tough guidelines on new borrowing by developers concerned about soaring debt.

“We’ll just have to tighten our belts, and our top priority is to make sure housing projects are delivered,” an official from a developer who has already defaulted on bonds told Reuters.

“It’s really hard to raise funds once your credibility is damaged,” the official said, speaking on condition of anonymity.

For developers in July, loans from domestic banks fell 36.8%, while capital raised overseas plunged 200%, according to Reuters calculations of BNS data.

Loans to households, including mortgages, fell to 121.7 billion yuan ($18.00 billion) in July from 848.2 billion in June, the central bank said on Friday.

Reflecting poor buyer sentiment, new home prices fell 0.9% year on year in July, the fastest pace since September 2015, and extending a 0.5% drop in June, according to calculations by Reuters based on NBS data. Read more

While developers stick to a wait-and-see pattern, they hope regulators will loosen their grip on the sector after a fall ruling Communist Party congress once every five years, where President Xi Jinping is expected to get an unprecedented third. leadership mandate.

“The major supply-side policies have not yet been relaxed, which is expected to be relaxed after the 20th CPC National Congress,” said a promoter, speaking on condition of anonymity.

In January-July, real estate investment fell 6.4% from a year earlier, the highest since March 2020.

New construction starts fell 36.1%, after falling 34.4% in the first half.

($1 = 6.7595 Chinese Yuan)

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Reporting by Liangping Gao, Ryan Woo, Kevin Yao, Shuyan Wang and Clare Jim; Editing by Jacqueline Wong

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