China Home Sales Are Falling Sharply

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Fall in September, usually a strong month, raises concerns about economic growth

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If sustained, a sharp recession could have dire economic consequences. Real estate has played a larger role in China’s economy in recent years than its importance in many other countries, and Chinese households hold much wealth in homes and investment properties. Slow sales can spill over into investment and construction, potentially hurting development, employment and local government finances. Giving discounts to increase sales can hurt home prices and impact home assets.

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Developers like China Evergrande Group have been struggling to adapt to a series of changes too publicly dubbed the “three red lines”, which were imposed last year on financially vulnerable companies to curb debt growth. As well as the cap on banks’ asset lending . Some have missed interest payments, and stock and bond prices across the industry have fallen sharply. The news has left home buyers worried, especially when developers sell many apartments before they can be built.

Cheng Wei Tan, a senior equity analyst at Morningstar, said the decline in sales was partly a result of tighter government policy on mortgages and a lack of confidence among home buyers. Clients are concerned that developers will not be able to complete their projects, and media reports about unfinished Evergrande construction have added to those fears, he said.

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Huang Jun, a 25-year-old real-estate agent in Foshan, a city in the southern province of Guangdong, said he has seen prices for new homes drop nearly 20% from their recent peak in March to the equivalent of about $346. Average per square foot.

“Virtually all developers have offered discounts in the last two months,” said Mr. Huang, who has worked as a local property agent for four years. “Like Evergrande, there should be pressure on them to sell more flats” to repay the loan, he said.

He said discounts during the recent week-long national holiday had attracted potential buyers, but some sealed the deal. “Most of them want to wait and see if prices will go down further,” he said, adding that “in China, most people prefer to buy apartments when prices are rising, not falling.”

Longfour Group Holdings on Tuesday Ltd.

and China Resource Land Ltd.

became the latest major real-estate companies to release weak data. In a filing, Longfour said September’s contracted sales totaled $3.1 billion. This was about 33% less than a year ago. China resource land recorded a decline of about 24%.

Contract sales are a widely observed industry measure. They reflect new contracts signed with home buyers and are a more forward-looking measure than revenue, which is typically recorded when companies hand over completed units to buyers.

Strong players have not been spared, contract sales fall 34% in China Vanke Co.

The country’s largest developer by market value. Unlike many of its peers, Venkee also enjoys investment-grade credit ratings, indicating that its loans are considered relatively safe.

Evergrande has not yet reported the figures to Hong Kong’s exchange, but warned on 14 September that “ongoing negative media reports” have deterred home buyers, which would mean significantly lower sales in September. Other developers did not provide an explanation for their low sales.

Official corporate figures roughly coincide with earlier data from CRIC, a Chinese data provider, which previously said that total contracted sales among China’s 100 largest developers fell 36% year-on-year in September.

Logan Wright, director of China Market Research at Rhodium Group, said the drop in sales could put stress on more developers, potentially preventing some from completing existing projects or forcing them to scale back future plans. can do

“If this continues, there is widespread concern whether some of the toughest measures come at the cost of the health of the region as a whole,” Mr Wright said. “You’re going to see weak financial conditions and weak construction activity spill over into the broader economy.”

From construction sites to showrooms, the industry is a significant source of both blue and white collar jobs in China. According to China’s National Bureau of Statistics, about 18% of China’s 285 million migrant workers earned income from construction-related jobs in 2020, while many college graduates work as real-estate agents. Local governments, meanwhile, depend on the sale of land to developers for about a third of their income.

China’s residential real estate market, including construction activity and services, accounted for about 23% of GDP in 2018, according to Goldman Sachs..

Economists at the bank have estimated that a 15% drop in land sales and a 5% drop in property sales and home prices will reduce China’s GDP by 1.4% next year. In a worst-case scenario, he said a 30% drop in land sales and a 10% drop in property sales from this year to the next could shrink GDP by as much as 4.1%, with the biggest impact being tighter financial conditions. Coming from

For now, the decline in contract sales reflects a decrease in sales volume compared to a drop in prices, suggesting that while transactions are drying up, prices have not yet been hit hard.

in Sanac China Holdings Ltd.

, for example, the average selling price fell just 1.4% to the equivalent of a little less than $200 per square foot. But its contracted sales area declined 31% to about 832 acres.

Still, there are signs that Chinese consumers think prices may drop. In the third quarter, urban bank depositors in China’s expectation of rising housing prices fell to 19.9%, according to a survey released by China’s central bank. This ratio is down from 25.1% a year ago and the lowest since the first quarter of 2016.

Short sales could also prompt more developers – desperate to recover cash to pay off debt obligations – to offer bigger discounts, which could put pressure on housing prices.

According to Chinese state media, during the past month, authorities in at least eight cities barred developers from cutting home prices that are considered too sharp and in some cases setting minimum prices.

Stella Yifan Xie at [email protected] and Elaine Yu at [email protected]

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