China's Property Down Cycle Worsened By Lockdowns

(MENAFN- Asia Times)

China's investment in real estate development declined while property developers' contract sales fell significantly last month as the country's property markets were seriously affected by virus outbreaks and city lockdowns.

Investment in property development dropped 10.1% to 1.14 trillion yuan (US$169 billion) in April from 1.27 trillion yuan a year ago, the National Bureau of Statistics (NBS) said Monday.

It has been the first year-on-year decline since the world's first epidemic wave broke out in Wuhan in Hubei province in early 2020.

To encourage homebuyers to enter the markets, the People's Bank of China (PBoC) on Sunday announced a reduction in mortgage loan interest rates for first-time homebuyers.

However, property analysts said the move was not enough to improve market sentiment as homebuyers' confidence remained weak due to the slowing economy and worsening job markets in China.

Since financial regulators barred highly-leveraged property developers from borrowing bank loans in July 2020, China's property markets have entered a down cycle. The central government also implemented property curbs to discourage people from buying homes.

In the last quarter of 2021, several large property developers, including Evergrande Group, suffered from a shortage of cash to repay debt and maintain normal operations. Homebuyers adopted a wait-and-see approach as they expected property prices to go down over the medium term.

In the past two months, homebuyers' confidence continued to shrink as dozens of Chinese cities were locked down due to the rise of the highly infectious Omicron variant. Although Shanghai on Tuesday announced it had achieved Covid clearance at the community level, stringent anti-epidemic measures are still in place in many key cities, including Beijing.

In the first four months of this year, investment in property development dropped 2.7% year-on-year, compared with a 0.7% increase in the first quarter, the NBS said Monday.

Property developers' residential floor area under construction decreased 0.1% year-on-year to 5.78 billion square meters in the first four months, the first decline in six years. New residential floor area under construction fell 28.4% in the period between January and April, widening the 20.3% decline in the first quarter.


China's property markets are having a down cycle. Photo: iStock Sales slump

Sales of residential floor area slumped 42.5% to 74.17 million square meters in April from a year ago.

In the first four months, property developers received cash of 4.85 trillion yuan, down 23.6% from the same period last year. They received 683.7 billion yuan from bank loans and 1.54 trillion yuan from property sales, down 24.4% and 37%, respectively.

On April 25, the PBoC reduced the reserve requirement ratios by 50 basis points for banks, freeing up more funds for lending.

The central bank and the China Banking and Insurance Regulatory Commission said Sunday that commercial banks could reduce the lower limit of interest rates on home loans by 20 basis points for first-time homebuyers, based on the corresponding tenor of benchmark Loan Prime Rates (LPRs).

Before this, Premier Li Keqiang said in a State Council meeting on May 13 that the government would adopt new policies that prioritize employment creation, mobilize existing assets, broaden the channels for private investment and expand effective investment.

In the short term, China's property markets would remain sluggish as property developers were not willing to start construction and investment due to their declining contracted sales, said Chen Wenjing, market research director of the China Index Academy's index division. It was likely that new residential floor area under construction would keep falling for some time, Chen added.

The decline of investment in property development in April, caused by virus outbreaks and disruptions in supply chains, was unexpected, said Li Yujia, chief researcher at the provincial residential policy research center of Guangdong.

Many property developers were still struggling to boost property sales as home seekers were worried about worsening job markets and declining personal income, Li said.

Meanwhile, 13 Hong Kong-listed mainland property developers missed their final deadlines to announce their 2021 annual results by Sunday. Trading of shares of nine developers, including Evergrande, Shimao, Aoyuan and Sunac, has remained suspended.

In late March, property developers' shares were under heavy downward pressure on Hong Kong markets as many of them said they would not be able to publish their annual results for 2021 as required by regulators by the end of the month.

Some, including R&F Properties and Country Garden, were able to release their results last month and trading of their shares resumed.

Read: Spooked investors keep dumping Chinese property stocks

Follow Jeff Pao on Twitter at @jeffpao3


Asia Times

Legal Disclaimer:
MENAFN provides the information “as is” without warranty of any kind. We do not accept any responsibility or liability for the accuracy, content, images, videos, licenses, completeness, legality, or reliability of the information contained in this article. If you have any complaints or copyright issues related to this article, kindly contact the provider above.