BEIJING (Businesshala) – China’s property sector, a key driver of economic growth, has weakened sharply this year as Beijing mounts a broader push to ease financial risks on speculators and indebted developers, with new home prices rising first. The bar has declined. six years.
In the near term, many analysts expect officials to try to stabilize the sector, which by some measures accounts for a quarter of GDP, although there is uncertainty over which policy lever Beijing will pull.
Executives will face and navigate challenges on several fronts: credit risk, the pressure of cost of living, anxious homeowners and the need to spur economic growth.
Concerns over rising financial risks are the primary driver of this action.
China’s property sector is heavily dependent on debt. According to Nomura, as of the end of the second quarter, Chinese developers owed 33.5 trillion yuan ($5 trillion), or a third of the country’s GDP.
Since officials unveiled the “three red lines” last year — a key policy issue aimed at limiting developers’ liabilities-to-assets, net debt-to-equity, and cash-to-short-term borrowing ratios — many Companies are extremely short of cash.
Graphic: Housing costs far exceed income in China’s big cities
China Evergrande Holdings, the world’s most indebted developer, followed a string of missed offshore debt payments and sell-offs in stocks and bonds, with the world’s most indebted developer repeatedly on the verge of default.
Bankers and analysts say Beijing is unlikely to ease the “three red lines” policy any time soon.
the cost of living
The authorities have also imposed lending restrictions on mortgages to prevent speculative home buying.
China’s major cities have some of the highest priced real estate in the world compared to the average local income.
Buying an apartment in Beijing, Shanghai or Shenzhen would save decades for someone with a standard salary in those cities.
Graphic: China Tier One City House Prices
Many people working in these metropolises will eventually have to move back to their home towns or move to cheaper inland cities. Subsistence pressures have led some young people to adopt an inactive lifestyle known as “letting down”.
President Xi Jinping has pledged to reduce inequality and ensure that housing is for living, not speculation.
Graphic: Families in China put their wealth in real estate
According to Businesshala calculations, prices for new homes have fallen by an average of 0.2% since September last month, the first drop since 2015.
Overall, the interest of lakhs of concerned homeowners could act as a significant brake on government policy for extreme cooling of the sector, analysts say.
Two-thirds of the wealth of China’s 1.4 billion people is tied up in residential property. More than 90% of urban households own a home, one of the highest rates in the world.
The purchase is driven by the expectation that the government will ensure continued growth in the sector, as well as strong social pressure to buy a home before marriage.
Graphic: China’s real estate sector has a global weighting
There are concerns that a too-sharp recession could plunge markets and social unrest will weigh heavily on China’s stability-obsessed government as it tries to balance the risks and rewards of moving through reforms.
Concerns about growth may also limit regulators.
Property and related industries account for about a quarter of China’s GDP, analysts estimate, and drive demand for steel, cement and mountains of other materials.
GDP growth is already slowing sharply this year, with the pace slowing to just 4.9% in the third quarter, from 18.3 percent in the first quarter.
Graphic: China GDP by Region
Another significant economic downturn could have a worldwide impact.
According to a report by Oxford analysts, if China’s current wealth slump follows the pattern of the previous one in 2014-2015, global GDP growth in the last quarter of 2022 could shrink by 0.7 per cent, metals and iron. With the fall in ore prices. Economics.
China’s GDP growth rate at 1.0% could see a more severe decline in the first three months of 2023, and global growth could take a significant hit.
“The countries most affected will be those for whom exports to China are particularly important and commodity exporters,” said Oxford analysts.