China’s economy could be affected by the loss of confidence in the property Sector

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The loss of confidence in the property sector could feed a contagion that would further damage the economy, analysts say.

At this point, confidence may be hard to build and the Evergrande problem may never go away.

Land sales which are a big part of the provincial government’s revenue have fallen by about 30% in the past year.

If Chinese confidence in property tanks, analysts say it could spur more turbulence for the Chinese economy.

It came as a major setback to China Evergrande Group that it couldn’t deliver on its promised $300 billion restructuring plan over the weekend.

Evergrande said it had “principles in place” for restructuring its offshore debts in filings with Hong Kong’s stock exchange. An unnamed guarantor was also ordered to pay 7.3 billion yuan ($1.08 billion) to one of the group’s subsidiaries, Evergrande Group (Nanchang).

The government is determined to get rid of the relationship between high borrowing costs and developer cash shortages that’s troubling the economy, according to Standard Chartered Chief Economist Shuang Ding.

This has led to a home mortgage boycott, discouraging home buyers, which is a threat to the developer.

It seems that China is in the midst of a revolt with its homeowners in 22 cities who are refusing to pay their loans on unfinished housing projects.

If we do not address this situation properly, it will have a major effect on the economy including the government’s budget, the banks’ balance sheets, and individual households, Ding explained.

According to Ding, the property-related problems in China threaten one of the strongest parts of a country’s economy: the faith of the people in the market.

Land sales, a majority of provincial government revenue, have fallen 30% in the past year.

Beijing should ringfence the property sector issues and handle them holistically, rather than piecemeal, to avoid mass insolvencies.

Dan Wang, chief China economist for Hang Seng Bank, says the government should take measures to prevent these projects from going into jeopardy.

Last week, China’s Politburo hinted it might miss its 5.5% GDP growth target for the year, while a new report showed China’s factory activity contracting unexpectedly in July after bouncing back from Covid-19 lockdowns in June.

While Beijing is responding to the crisis in the property sector, the Evergrande crisis is unlikely to be resolved soon and may never be resolved at all, Sandra Chow from CreditSights said.

He expects it to take investors a long time to recover their confidence not just in Evergrande, but also in the Chinese property sector as a whole.

It will be very challenging to rebuild confidence in China’s property market despite all the easing measures and falling asset values, particularly in the lower tier regions.

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