China’s property market crisis is deepening as developers recently posted steep losses, contrasting with first-half year earnings from last year. Apollo News pointed out several potential threats on September 7 that would likely further weigh on the ailing property sector in the time ahead.
According to the report, the main cause of the real estate crisis in China is weak consumer sentiment as developers’ funds mostly come from presales. This process requires homebuyers to pay up front for their homes even before they are finished.
However, due to the CCP’s brutal crackdown to rein in real estate speculation and the stringent zero COVID policy, many developers are facing a cash-flow crunch that has sent some major firms into default, including real estate giants Evergrande, Sunac, and Greenland.
This cash-strapped predicament has led to nationwide mortgage strikes by dissatisfied homebuyers of unfinished presold projects.
Apollo News reported that Chinese developers are on average 14 months behind completion deadlines. Among the projects targeted by the mortgage payment boycott, only 32% of them have missed the deadline.
This figure shows that Chinese households have lost confidence in the property market and thus prefer piling up savings instead. As a result, developers of presold projects, which account for 86% of the property market, would likely see a 30% drop in sales this year.
In addition, a June survey shows that the CCP’s efforts to shore up the property market, it has not been able to restore consumer confidence.
Should mortgage rates fall to the same level as 2017, the number of households expecting home prices to increase would only be 16.2% and only 16.9% plan on buying a home in the next three months, in 2018 36.5% expected house prices to rise and 23% intended to buy a house in the next three months.
Apollo noted that as of the end of July, the number of unfinished buildings was at least 821,000, with a 30% down payment. This amounted to about $106 billion (735 billion yuan), or around 2% of China’s total mortgages.
This is just part of the unfinished projects. If the worst scenario happened, with all homebuyers refusing to pay mortgages, then the loan figure could become as high as $330 billion (2.3 trillion yuan), or 6% of total mortgages in the country.
Another challenge that distressed Chinese developers is the competition from state-owned enterprises.
According to Apollo, Chinese state-run firms have acquired 74% of land so far in 2022. This compared with 40% of land before 2019.
While private firms are struggling with highly leveraged and fast-turnaround business strategies, Chinese state-backed companies will also take the chance to increase market share and buy up more cheaper assets.Regarding China’s property crisis, Bloomberg on August 30 reported that China’s biggest property developer Country Garden sees its first-half year earnings tumbling 96%, the worst since Hong Kong’s listing in 2007.