China’s real estate crisis is deepening as new home sales plunge 33% and China’s biggest property developer, Country Garden, cancels a share placement. This reflects the severity of the current situation in the country’s real estate market.
Country Garden’s decision to pull out of a share placement, which aimed to raise $300 million through the issuance of new shares in Hong Kong, has further unsettled investors. The cancellation coincides with the release of data showing a 33% drop in new home sales by China’s top 100 developers in July compared to the previous year.
In a statement, Country Garden said that no definitive agreement had been reached regarding the proposed transaction, and they were not considering it at this stage. As a result, the company’s shares fell by as much as 11% on the Hong Kong stock exchange.
This decline in new home sales represents the sharpest monthly decrease since July 2022. Over the first seven months of this year, new home sales by the top 100 developers have fallen by 4.7% compared to the previous year.
According to the China Real Estate Information Corp., the current market demand and purchasing power are overdrawn, and industry confidence remains low. This underscores the challenges faced by the Chinese real estate sector as it continues to grapple with the fallout from the pandemic and a sluggish economy.
China’s property industry has traditionally been a crucial driver of economic growth, accounting for up to 30% of the country’s GDP. A revival in the sector is seen as vital for the recovery of the world’s second-largest economy, especially after three years of self-imposed isolation due to the coronavirus pandemic.
Recognizing the need to support the faltering property sector, top policymakers in Beijing have indicated their increasing concern about economic growth. They are now initiating a new round of property easing measures and may introduce stimulus packages to redevelop old districts in large cities.
Premier Li Qiang has pledged to adjust and optimize policies to ensure a healthy and stable property market. However, specific details regarding these policies have not been provided.
Several major cities in China, including Shanghai, Guangzhou, Shenzhen, and Beijing, have indicated their intention to introduce measures to boost their local property markets. While the steps taken so far indicate a commitment to aiding the property sector, analysts believe that more robust measures are needed to reverse the downward trend.
Households in China have become hesitant to purchase new homes due to the impact of Covid-19 restrictions, falling home prices, and rising unemployment. The series of defaults by property giants in 2021 has further eroded confidence in the sector, with many home buyers left without the apartments they had paid for.
Over the past two years, China’s property industry has experienced a historic downturn. Although new home prices stabilized earlier this year after 16 consecutive months of decline, they resumed their downward trend in June, emphasizing the challenges of reviving demand.
To alleviate the liquidity crisis in the real estate sector, the People’s Bank of China extended the repayment period for developers’ outstanding loans due this year. Additionally, Beijing introduced a 16-point plan late last year, providing support to developers by allowing extensions on maturing loans and facilitating alternative funding sources.
Overall, the real estate crisis in China is deepening as new home sales plummet and major developers struggle. The Chinese government is taking note of the situation and has expressed its commitment to implementing policies that support the sector’s recovery. However, analysts believe that more comprehensive measures are necessary to restore confidence and ensure sustainable growth in the long term.
