Pummeled by a housing crisis that caused a record-breaking slump last year, some Chinese property developers are starting to see light at the end of the tunnel, but analysts warn that the sector is still on course to slow down in the long term.
The real-estate industry had been growing at lightning speed since 1998, when restrictions were eased in China, a country where buying a home is a common prerequisite for marriage, as well as an investment.
For two decades, developers had been able to build at breakneck speed thanks to easy bank loans, but their debts swelled so much that authorities in 2020 began to put a stop to that access to cash.
Photo: AP
Since then, availability of credit has been slashed and demand for property has fallen as a result of the economic downturn and a crisis of confidence.
That was exacerbated by the near bankruptcy of the former industry leader Evergrande Group (恆大集團) and has spread to other developers, which are in turn shunned by potential buyers for fear of similar setbacks.
Once China’s largest real-estate company, Evergrande this month said it had entered into a restructuring agreement with a group of international creditors, in what could be a breakthrough deal toward easing the developer’s massive debt.
The firm said its plan was “a substantial positive milestone” that would “facilitate the company’s efforts to resume operations and resolve issues onshore.”
In China, most new properties are paid for even before construction begins.
The property market experienced its “worst-ever slump” last year, with sales down 24 percent, said Rosealea Yao (姚麗薔), an analyst at Gavekal-Dragonomics (龍洲經訊), a Beijing-based economic consultancy.
The COVID-19 pandemic was an aggravating “anxiety” factor, causing many potential buyers to postpone purchasing property, Yao said.
The sector has also been hit by some homeowners refusing to pay their monthly mortgage payments after getting fed up with developers downing tools over a lack of cash.
However, after a dark year, “China’s property market has shown signs of stabilizing” since the beginning of this year, Fitch Ratings Inc said.
Last month, a representative survey of major cities across China recorded a significant increase in property prices, the Chinese National Bureau of Statistics (NBS) said last week.
Of the 70 cities that make up the official list, 64 recorded a price increase — up from 55 in February and 36 in January, it said.
“This is a strong signal that the sector’s long-awaited recovery is finally taking root,” said Shehzad Qazi, managing director of China Beige Book, a consultancy that tracks the Chinese economy.
“We may see a rebound for the next few months, but then on the longer term basis, the next year or the following year, I don’t see we will see a big rebound further,” said John Lam (林鎮鴻), who monitors the Chinese property market for UBS Group AG.
China’s declining population, a trend that started last year, would continue and inevitably weigh on demand for property, Lam said.
In addition, “we don’t have the speculative demand coming back,” with the Chinese government pushing the idea that housing is for living in, “not for speculation,” Lam added.
Real estate would experience “cyclical bouncebacks,” but the days of rapid growth are “likely behind us,” Qazi said.
The property sector, which along with construction accounts for about one-quarter of China’s GDP, is a key pillar of the country’s growth. It is also a major source of revenue for local authorities, whose finances are in a state of flux after three years of huge spending to tackle COVID-19.
To revive a struggling sector, the government has adopted a more conciliatory approach since November last year, with targeted support measures for the most financially sound developers — with mixed results.
Last month, the number of new projects starting construction dropped 29 percent year-on-year after a fall of 9.4 percent in January and February, NBS figures showed.
This is despite the low base of comparison with last year, when China’s property market was in turmoil.
“Developers remain cautious and they are prioritizing completing the existing projects over starting new ones,” Macquarie Group Ltd economist Larry Hu (胡偉俊) said.
The sector is “on the mend, but not out of the woods yet,” he added.
The recovery is mainly benefiting big cities such as Beijing and Shanghai, which have regained their 2019 momentum, while the property market in smaller cities still shows “no improvement at all,” Yao said.
Less attractive cities might risk “suffering a population outflow” in the future, Lam said.
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