SHANGHAI — Home prices fell last month in most of China’s largest cities, signaling that worries about the future of the country’s debt-strapped property developers are driving homebuyers to the sidelines.
According to data released on Wednesday by the National Bureau of Statistics, prices for new homes fell in 36 of China’s 70 largest cities, the highest number in six years. In August, prices fell in 16 of the tracked cities.
Overall, average property prices in September declined 0.5% from where they were in August, according to annualized seasonally adjusted calculations by Goldman Sachs.
While prices continued to rise slightly in Shanghai, Shenzhen and most of the country’s very largest metropolises, secondary cities posted significant falls, with prices in so-called tier 4 cities dropping 7.5%. Guangzhou prices slipped 0.1% while prices in Beijing were flat.
The figures follow data released on Monday by the statistics agency showing that home sales in September fell 16.9% in value terms from a year earlier. This was down from a 19.7% drop in August.
The agency also reported that real estate investment and the area of newly started construction fell in September from a year before. Goldman noted that inventories of unsold homes grew in September on a monthly basis.
Property and related industries represent China’s largest business sector, at 24% of overall output, according to a report issued Wednesday by Louis Kuijs of Oxford Economics.
Consequently, the industry’s troubles are weighing on economic output. China on Monday reported year-on-year gross domestic product growth for the third quarter of 4.9%, below economists’ forecasts.
China Evergrande Group, one of the country’s top three developers, has halted work on hundreds of its property projects across the nation after falling behind on payments to contractors, suppliers and investors. A number of smaller developers have defaulted on their debts.
Sinic Holdings (Group) failed to repay a $250 million bond that came due on Monday, S&P Global Ratings said on Wednesday, declaring the company to be in “selective default” after it also failed to pay interest due in September.
Evergrande itself has missed a number of bond coupon payments in recent weeks. The 30-day grace period to make good on the first of those missed payments is set to expire later this week, potentially triggering a formal default.
Developers have come under pressure over the past year as China has tightened mortgage lending rules and put constraints on companies’ financing channels to contain risk.
The government is particularly anxious about millions of homes that were sold before construction, with doubts rising about developers’ ability to complete the projects. This has also damped consumer interest in the sector, even as Evergrande and other property companies expand discounts in a desperate attempt to chase sales.
“The policy direction of deleveraging the property sector is unlikely to shift which could continue to weigh on growth next year,” said Goldman analyst Helen Hu in a note to clients on Wednesday.
Longer term, more fundamental changes are needed.
“To avoid a sudden hard landing and to rebalance the structure of the economy, China’s government will have to gradually reduce the housing footprint,” Oxford’s Kuijs said. “There are signs that the government is becoming more serious about the need to reduce the role of real estate over time.
“We expect real estate to contribute much less to growth over the medium and long term than in recent decades.”
source: nikkei
