China's property sector, accounting for about 29% of the country’s GDP, is in a state of marked decline. Recent data reveals a continued slump in property sales and investment, despite various governmental support measures. New home prices have fallen at the fastest pace in 10 months, dropping 0.3% month-on-month as of August 2023. Property investment fell for the 18th straight month, down 19.1% year-on-year from a 17.8% slump the previous month.
There is a noticeable discrepancy between official government statistics and private data. While official data shows only a 2.4% and 6% drop in new-home and existing-home prices, respectively, private data reveal that existing home prices have plummeted by at least 15% in major metropolitan areas like Shanghai and Shenzhen.
Property sales by floor area fell 19.77% year-on-year, with a deepening sector correction disrupted by COVID-19 and government crackdowns on debt. Additionally, new construction starts measured by floor area fell 23.4% year-on-year. The top 100 developers in mainland China saw a 33% year-on-year fall in sales by July 2023.
This downturn in the real estate sector disrupts an ecosystem crucial to millions of jobs, from construction workers to real estate agents. In a country where real estate plays a pivotal role, a slowdown is not just a sectoral crisis—it is a potential economic catastrophe.
While Evergrande's downfall has captured global attention, several other debt-laden developers like Fantasia Holdings, Sinic Holdings Group, and Modern Land are either defaulting or teetering on the brink of default.
Evergrande's situation has worsened significantly. The company reported a net loss attributable to shareholders of 476 billion yuan for 2021 and 105.9 billion yuan for 2022. Its total liabilities stood at 2.43 trillion yuan as of December 2022, up from 2 trillion yuan in September 2021. In August 2023, Evergrande filed for bankruptcy protection in a New York court under chapter 15 of the US bankruptcy code.
As of August 2023, an estimated 60-80 million apartments in China were empty. Many properties have been marketed by developers like Evergrande as speculative investments rather than homes to live in, creating a significant overhang in the market.
The crisis in China's property sector, a crucial component of the national economy, presents significant challenges not only to the real estate market but also to the broader economic and social landscape. The situation remains precarious, with the potential to impact global markets and economies. The real estate sector's recovery and stabilization will be critical in determining the future trajectory of China's economic growth and stability.
Phil Schneider
