China’s property market will continue to decline in 2022: S&P

Already under pressure, China’s property market is faced increased headwinds in November following cash crunch among developers and faltering demand.

Prices for new homes fell by 0.3% month-on-month in November marking the biggest decline since February 2015. In October, home prices had fallen by 0.2%.

In a statement the National Bureau of Statistics said, home sales by value had fallen by 16.31% in their fifth month of declines, underscoring falling demand. This is despite measures taken by cities to boost transactions.

“Cities of all classes are under pressure,” said Yan Yuejin, director of Shanghai-based E-house China Research and Development Institution. “The current scale of market supply is large and demand is weak. The key is to accelerate inventory de-stocking to stabilise home prices.”

The property industry is also seeing tighter regulations this year, including curbs on bank lending and limits on how much property developers can borrow.

Last week, China Evergrande Group and Kaisa, both major developers missed payment deadlines on their offshore bonds, prompting Fitch to downgrade the companies to “restricted default” status.

“Due to the dual impact from the cyclical slowdown and (government) policies, coupled with the debt crises at some developers, the property shock is yet to pass, but with a good policy response, systemic risks can be avoided,” said Zhang Yi, chief economist at Zhonghai Shengrong Capital Management.

Chinese leaders trying to mitigate financial risks for the property industry said, “houses are [meant] for living in, [and] not for speculation”.

“The Central Economic Work Conference has set the tone of stabilising growth for next year, so we believe that as government policy kicks in, economic growth in the fourth quarter and first quarter of next year would bottom out and rebound,” said Zhang.

Since November, at least six Chinese cities have introduced measures to boost home purchases, including providing subsidies or deed tax reductions, stated local media reports.

According to S&P, the downturn in the property industry is likely to persist on the back of credit tightening and restrictive policies set by the ruling party, potentially leading to a 10% decline in nationwide residential sales in 2022.

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