Wednesday, August 10

China’s real estate market crashes again when another developer gets into trouble | China

China’s giant real estate market has continued to decline over the past month and another major developer showed signs of financial distress as state-owned companies began dividing the corpse of bankrupt real estate giant Evergrande.

House prices, sales, investment and construction data released Wednesday showed renewed signs of the crisis in the market, which accounts for up to 30% of the country’s output and appears to affect the second-largest economy. of the world.

It comes a day after the shares of one of China’s largest developers, Shimao Group, fell 20% on concerns that it was dumping assets to manage its spiraling debts.

New home prices fell 0.3% month-on-month in November, the biggest drop since February 2015, according to Reuters calculations. The figure was worse than the 0.2% drop in October, and only nine of the 70 cities tracked by China’s statistics bureau saw monthly price increases in November, the smallest amount since February 2015.

The real value of home sales plummeted 16.31% in what was a fifth consecutive month of decline, official data showed. New construction starts, measured by built area, fell 21.03% year-on-year in November for the eighth month, while real estate investment by developers fell 4.3%.

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

However, more data released on Wednesday showed that weak demand for homes was in line with other metrics across the Chinese economy.

Actual retail sales were up just 0.5% on an annual basis, down from 1.9% in October, to give the weakest result since August 2020, and well below pre-Covid levels as consumers held out. cautious and the Covid outbreaks continued to cause sudden crashes.

Passenger traffic data suggested that people weren’t traveling or spending as much, and sales during the annual shopping festival Nov. 1-11, China’s response to the “Black Friday” wave of consumers in the United States, decreased compared to the previous year.

Industrial production rebounded last month after power shortages eased from previous months, but economists said the overall picture was turning bleaker.

Gerard Burg of Westpac in Australia said there was little sign of improvement in underlying economic conditions in November and that he was cutting the bank’s forecast for the Chinese economy.

“Overall, industrial production growth was only marginally stronger, investment trends remained extremely weak, and retail sales data points to minimal growth in consumption,” he said.

China unveiled a package of measures earlier this month to boost the struggling economy, including freeing up banks to lend more money to targeted companies.

Many economists expect the central bank to cut the main interest rate from its current 3.85%, very high compared to all major Western economies, and further fiscal measures to boost economic activity in the new year are also seen as likely. .

Yet the crisis engulfing the housing market is looming over the economy in the wake of last week’s default by China Evergrande, once the second-largest real estate developer in the country. It eventually succumbed to its $ 300 billion mountain of debt when it failed to reach the $ 82 million owed to offshore creditors, and analysts have said a massive restructuring effort is now underway.

Reports on Wednesday said a task force sent by the government to Guangdong, Evergrande’s home province, had arrived at the company’s headquarters to begin work on dividing the conquering empire built by former steel executive Xu Jiayin.

The task force is made up of representatives from state-owned monoliths such as Guangdong Holdings and the state-owned investment bank, China Cinda Asset Management.

But while the state appears poised to absorb Evergrande’s debts and carry out the daunting task of handing over about 1.6 million unfinished homes to buyers who have already paid for the properties in advance, developers who have previously been They considered insurance they are having financial problems. .

Shares of Shimao Group, which was one of China’s top 10 developers last year and rated investment grade until a month ago, fell a record 20% on Tuesday after it sold assets between different parts of the company. and canceled apartment sales.

Its bonds also fell in price and yields soared, reflecting the risk to investors of lending money to the company. A Bloomberg index of real estate developer stocks in China fell to its lowest level since early 2017, and Evergrande shares fell nearly 10% to a record low.

An S&P report in November warned that up to a third of Chinese developers could experience financial difficulties in the next 12 months due to weak demand for housing and the Xi Jinping government’s crackdown on what it sees as the industry’s recklessness. build ”model.

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