China’s property sales will plunge 30% – worse than in 2008, S&P reports

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China’s property sales are anticipated to drop by approximately 30% this year–a twofold more dramatic rate than was originally forecast, the S&P Global Ratings study shows, which coincides with a growing number of Chinese homebuyers suspending their mortgage payments.

According to Esther Liu, director of S&P Global Ratings, a drop of this magnitude would be worse than in 2008 when sales fell by 20 percent.

She said the latest developments have delayed a recovery in China’s real estate sector until next year from this year.

BEIJING — The property sales in China are expected to plunge even more this year than in 2008, according to new estimates from S&P Global Ratings.

National property sales are expected to drop by 30% this year, nearly two times worse than was forecast earlier, the ratings agency says, citing a growing number of Chinese homebuyers suspending their mortgage payments.

According to Esther Liu, director of S&P Global Ratings, a drop of this magnitude would be worse than in 2008 when sales fell by 20 percent.

The number of Chinese homebuyers refusing to pay their mortgages on unfinished projects has increased rapidly since late June – until developers finish constructing the apartments.

Chinese developers generate significant cash flow from selling homes before they are finished. However, they have encountered difficulties securing financing in the last two years as Beijing cracks down on their high reliance on debt for growth.

Currently, the strike is hurting market confidence, delaying a recovery of China’s real estate sector to next year rather than this year, Liu said.

If the rate of declining home prices accelerates, this will endanger financial stability.


Property sales are slowing and more developers are in danger of going bankrupt, this lady says, which will weaken developers in better financial standings if it continues.

If homebuyers do not get what they are promised in the purchase of an apartment, there is a possibility for riots and civil unrest.

Spillovers limited outside of real estate

Though mortgage rates increased quickly in a short period of time, analysts do not think it will lead to a financial crisis on a wider scale.

Separately, S&P estimated the suspended mortgage payments could affect 974 billion yuan ($144.04 billion) of such loans – 2.5% of Chinese mortgage loans and 0.5% of total loans.

this report mentioned that if there is a sudden drop in home prices, it could threaten the nation’s stability. To remedy this, the government released financial assistance to soothe eroding confidence.

The Chinese government has encouraged banks to lend to developers and emphasized the need to finish apartment construction. Authorities have generally expressed more support for real estate since mid-March, although they maintain the mantra, “houses are for living in, not speculation.”

What worries us is the scale of those relief efforts are not big enough to change the situation, which now has a worse direction, Liu said.

Liu said her team does not expect a sharp decline in house prices as local governments tend to support prices. They predict a 6% to 7% decline this year, followed by stabilization.

Even though S&P economists believe China’s economy is partly reliant on the property market, they estimate that only 25% of that dependency is problematic.

Unraveling a bigger problem

The real estate sector has long been intertwined with local governments and land use policy, making it difficult to resolve the industry’s problems quickly.

Xu Gao, director of the China Chief Economist Forum, noted in a report published Tuesday that the amount of residential space completed annually has not grown on average since 2005, while the amount of land area sold has decreased on average in that period.

The contraction contrasted with booming land-sale rates before 2005 when the new bidding process had just gone into effect. That tight supply then increased housing prices, more than speculative investments had.

In the opinion of Goldman Sachs, the best investors can do in a low interest rate environment is take risks with longer-dated and higher-yielding assets in China, which offer greater upside than riskier assets.

Overall, though, it’s a story of uncertainty in one of China’s largest sectors.

“We see a murkier outlook for China given the continued challenges in the property sector and uncertainty related to COVID measures,” wrote credit strategist Kenneth Ho.

He referred to a scenario in which credit worries remain elevated but without real systemic concerns, creating a negative overhang for the high-yield credit markets.

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