Chinese property market hit by weak demand amid Evergrande debt crisis

  • New home prices in China fell 0.3% month-on-month in November, the biggest drop since February 2015.
  • Official statistics show that home sales by value fell 16.31% in their fifth month of decline.
  • The low demand was despite measures taken by some cities to stimulate transactions.

The Chinese real estate market suffered more headwinds in November, with plummeting house prices, sales, investment and construction, weighed down by weak demand and a shortage of liquidity among developers.

New home prices fell 0.3% month-on-month in November, the biggest drop since February 2015, according to Reuters calculations based on data released Wednesday by the National Bureau of Statistics (NBS). It was worse than the 0.2% drop in October.

According to Reuters calculations, only nine of the 70 cities tracked by NBS recorded monthly price increases in November, the lowest since February 2015.

In a separate statement from the NBS, home sales value fell 16.31% in their fifth month of decline, indicating sluggish demand despite measures taken by some cities to stimulate transactions.

“Cities of all classes are under pressure,” said Yan Yuejin, director of the Shanghai-based Chinese research and development institution E-house.

“The current scale of market supply is large and demand is low. The key is to accelerate inventory clearance to stabilize home prices. “

China’s real estate industry is grappling with stricter regulations this year, including restrictions on bank lending and limits on how much real estate developers can borrow amid mounting financial difficulties.

Last week, Evergrande Group in China and another major developer, Kaisa, missed its offshore bond payment deadlines, prompting Fitch to downgrade the companies to “narrow default” status.

New home prices have fallen in 64 of 70 cities so far this year, according to Reuters calculations.

On the supply side, new construction starts as measured by floor space fell 21.03% year on year in November, down for the eighth month, while real estate investment by developers fell. 4.3%.

“Due to the dual impact of the cyclical downturn and (government) policies, coupled with debt crises among some developers, the real estate shock has not yet passed, but with a good policy response, systemic risks can be avoided.” Zhang Yi said. , Chief Economist at Zhonghai Shengrong Capital Management.

Support measures

Key Chinese officials said “houses are for living, not for speculation” at an agenda setting meeting on Friday. They are also committed to fostering the healthy development of the real estate market and better meeting reasonable demand from home buyers.

“The Central Economic Labor Conference set the tone for stabilizing growth for next year, so we believe that as government policy takes effect, economic growth in the fourth quarter and first quarter of next year would bottom out and rebound, ”Zhang said.

At least six cities have introduced measures to boost home purchases since November, including offering grants or tax cuts on acts, local media reported.

The stock of unsold homes in China’s 100 largest cities hit its highest level in five years in November, according to a private sector survey last Friday.

New housing prices fell 0.4 percent mo-mo in level two cities and 0.3 percent in level three and four cities, compared with zero growth in level one cities last month.

Rating agency S&P expects real estate slowdown to persist due to the credit crunch and restrictive policies in the sector, which could lead to a 10% drop in residential sales nationwide next year.