- May data show that China’s giant real estate sector is still struggling to bounce back, despite signs of recovery earlier this year.
- New home sales rose 11.8% year-on-year in the week ending May 28, slowing significantly from 24.8% in the week before, Nomura’s chief China economist Ting Lu said in a report.
- Fitch Ratings said that in the existing home market, “business activity has cooled since April due to a decline in the number of homes for sale, lower asking prices and a decline in transactions.”
On May 25, 2023, construction of a real estate development project begins near the Bund in Shanghai, China.
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BEIJING — China’s large real estate sector is still struggling to bounce back, despite signs of recovery earlier this year, new data shows.
“In the rebound from April, prices accelerated in the housing market, but sales slowed,” the US-based China Beige Book said in a May report on Tuesday. This is based on a survey conducted by the research company on 1,085 companies from May 18 to 25.
“Commercial real estate saw a sharp downturn in both pricing and transactions,” the report said. “Copper producers’ earnings and output contracted in May due to poor construction performance and reduced fiscal activity.”
The Chinese government eased pressure on property developers last year after a crackdown on debt levels in August 2020. Moody’s estimates that the real estate sector and related industries make up more than a quarter of China’s economy.
New home sales rose 11.8% year-on-year in the week ending May 28, slowing significantly from a 24.8% increase in the previous week, Nomura’s chief China economist Ting Lu said in a report on Monday. bottom. This is based on his 7-day moving average data from Wind Information.
Sales volumes for both weeks were lower than during the same period in 2019 before the pandemic, the report said.
Most of the decline in sales is attributed to China’s largest city, the report said. These so-called first-tier cities are bright spots as people tend to move to city centers in search of work.
Investors in Chinese property developers are also becoming more skeptical about the market.
The Markit iBoxx index of Chinese high-yield real estate bonds has fallen to near trading levels in November, when the Chinese government announced a ’16-point plan’ to support the sector.
Analysts at S&P Global Ratings said on May 22 that although the plan “helped bring this crisis to an end,” the effort is only intended to help developers with debt at the project level. said in a report.
That means there is still uncertainty about whether the developer will be able to repay the bond to investors at the holding company level, the rating agency said. They are looking at whether the developer can generate enough cash from the sale of the property.
Analysts said in April that state-owned property sales fell to 900 billion yuan ($126.87 billion), below the monthly average of 1.1 trillion yuan last year.
For the full year 2023, S&P expects Chinese developer revenues to fall about 3% to 5%, a slight improvement from previous forecasts of 5% to 8%.
The report said this year’s projections are based on expectations that sales in big cities will rise by about 3%, while sales in smaller cities will fall by no more than 10%.
Fitch Ratings said in a Monday release that in the existing home market, “business activity has cooled since April due to a decline in the number of homes for sale, lower asking prices and a decline in transactions.” .
“This economic slowdown follows a strong recovery in the first quarter of 2023 and suggests that homebuyer confidence remains fragile amid an uncertain economic outlook and weak employment outlook.”[s]. ”
New homes in China are usually sold before developers finish building the apartments.
“Unlike the new home market, pricing and supply are not subject to regulatory intervention, so sentiment in the existing home market can generally be viewed as a barometer of the real estate sector,” Fitch analysts said. Stated.
Analysts said they estimated that second-hand home sales also have a big impact on the price of new homes, with more than half of the homes sold in big cities in China falling into the second-hand market.
The slump in May occurred amid growing expectations of a market recovery.
Quarterly surveys by the People’s Bank of China have found growing interest among locals in buying homes in the coming months, raising expectations of higher property prices.
Beike Research Institute market analyst Liu Lijie said in a written commentary translated by CNBC on Tuesday that the property market is still in a “correction period.”
Liu said government policies should improve market expectations for property recovery, noting that additional measures could also be taken in big cities to encourage home buying.
