Several large developers have recently reported lower sales figures for September.
If sustained, a sharp recession could have dire economic consequences. According to Goldman Sachs, China’s residential real estate market, including construction activity and services, accounted for about 23% of GDP in 2018..
Construction and real estate services are important sources of jobs for both migrant workers and college graduates, and land sales to developers provide about a third of the income generated to local governments.
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.
Developers are also struggling to adapt to a series of changes, including rules dubbed the “three red lines”, which were introduced last year to curb credit growth on financially vulnerable companies, with As well as the cap on banks’ asset lending.
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 to Hong Kong’s Stock Exchange, Longfor said September’s contracted sales totaled 20.2 billion yuan, or the equivalent of $3.1 billion. This was down about 33% from a year earlier, while China Resources Land reported a decline of about 24% on the same basis.
The decline has been even sharper in some other major rivals, recent filings show, including a 34% drop in China Vanke Co.
and China Overseas Land and Investment declined by 42%. Ltd.
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.
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 activities spill over into the broader economy,” he said.
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, over the past month, authorities in at least eight cities have barred developers from cutting home prices that are considered too sharp and in some cases setting minimum prices.
Economists at Goldman Sachs have forecast 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