No matter how China’s state-controlled media obscures and distorts it, the problems of the country’s huge real estate sector have worsened over the past two months.
This was underscored by Monday’s March economic data dump, particularly the latest figures on real estate investment and sales – in short, they were terrible.
And the current Covid epidemic played only a small role in the poor March figures which saw larger declines in sales, new start-ups and fundraising as well as a sharp drop in new investments by compared to January and February.
With Covid having a much bigger impact this month, analysts say the April and June quarter data will be even worse and add more financial pain to an already badly damaged sector that still accounts for around 25% of investments. in the economy.
With operations in cities large and small – led by Shanghai, closed or restricted – it’s the last thing China’s real estate sector wants to see in the wake of multiple defaults by real estate companies of all sizes, led by the giant. Evergrande.
Continued weakness in investment and sales indicates that future demand for key commodities such as cement, steel, timber, bricks, tiles, aluminum and copper will weaken over the remainder of 2022.
And for Australian suppliers of these key commodities, the outlook for real estate and construction is weak and even rumors of government spending stimulus will not have an immediate impact.
In fact, manufacturing output of crude steel and cement in March contracted 6.4% y/y and 5.6% y/y respectively.
Overall real estate investment contracted 2.4% year-on-year (y-o-y) in March (after rising about 3.7% y-o-y in the first two months).
National Australia Bank said in a comment on Tuesday; “Chinese authorities have publicly stated that they are seeking to stabilize housing conditions, but face significant challenges – given the importance of the sector to the overall economy, as well as mortgage tensions among households. highly indebted and wealth effects related to house price changes.”
Data from the National Bureau of Statistics showed a 0.7% rise in investment in residential properties in March, but that was down sharply from a 3.7% gain in January and February.
The current Covid lockdowns will see this figure swing into negative territory, joining sales, new starts and new funds.
Real estate sales by floor area fell 13.8% year-on-year in the first quarter of the year, compared with a 9.6% decline seen in the first two months, according to data from the National Bureau of Statistics ( NBS).
New construction starts as measured by floor area fell 17.5% in January-March from a year earlier, after falling 12.2% in the first two months.
Funds raised by Chinese property developers fell 19.6% year-on-year in the first three months, after falling 17.7% in January-February.
After some signs of improvement in January, recent COVID-19 outbreaks and severe shutdowns have put further pressure on the sector, Chinese analysts said.
The value of commercial home sales fell 22.7%.
All of this helps explain the 6% drop in China’s crude steel output to 88.3 million tonnes in March from more than 94 million tonnes a year earlier.
But it was above the monthly average for January and February which were combined at a total of 158 million tonnes (down 10% from the start of 2021).