China’s Property Sales Decline Stems From Its Largest Cities

Despite early signs of recovery, data for May 2023 indicate that China’s massive property sector is still struggling to recover.

In a report that is based on seven-day moving average data from Wind Information, Nomura’s chief China economist Ting Lu noted that new home sales for the week that ended on May 28 grew by 11.8% from a year earlier, which is a significant slowdown from the 24.8% growth that occurred a week earlier.

In the secondary-home market, business activity “has been cooling since April, with a fall in the number of listed-for-sale homes, lower asking prices and fewer transactions,” Fitch Ratings said.

“In a reversal from April, prices accelerated in the housing market but sales slowed,” the U.S.-based China Beige Book said in its report for May, released Tuesday. That’s based on the research firm’s survey of 1,085 businesses conducted from May 18 to 25.

The report says that commercial property prices and transactions both fell dramatically. It adds that copper producers’ May 2023 earnings and production contracted due to poor construction results and decreased fiscal activity.

Beijing has reduced its pressure on real estate developers somewhat recently, following a crackdown on their obligation levels in August 2020. Moody’s estimates indicate that the property sector and related industries have contributed more than a quarter of China’s economy.

According to the report, sales volume for both weeks was lower than it had been during the same time period in 2019 prior to the pandemic.

According to the report, China’s largest cities were responsible for most of the decline in sales. Since people typically relocate to urban centers in search of employment, those so-called tier-1 cities have been a bright spot.

Additionally, investors in Chinese property developers are becoming increasingly sceptical of the market.

The Markit iBoxx file for China high return land bonds is down to approach where it was exchanging November, when Beijing reported help for the area through a “16-point plan.”

S&P Global Ratings analysts stated in a report on May 22 that the initiatives are only aimed at supporting developers’ debts at the project level, despite the fact that that plan “has been instrumental to setting a floor to this crisis.”

That implies there’s still vulnerability about whether designers can compensate investors for bonds at a holding organization level, the evaluations office said. They want to know if the developers can sell enough properties to pay for themselves.

The analysts noted that national property sales decreased to 900 billion yuan ($126.87 billion) in April, below the monthly average of 1.1 trillion yuan for the previous year.

S&P anticipates a 3% to 5% decline in China developer sales throughout 2023, which is slightly less than the previously anticipated 5% to 8% decline.

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According to the report, the expectations for this year’s forecasts are that sales in larger cities will increase by approximately 3%, while sales in smaller cities will not decrease by more than 10%.

Fitch Ratings stated in a press release that business activity in the secondary home market “has been cooling since April, with a fall in the number of listed-for-sale homes, lower asking prices, and fewer transactions.”

“This slowdown follows a strong rebound in 1Q23, suggesting homebuyer confidence remains fragile amid an uncertain economic outlook and weak employment prospect[s].”

New homes in China are typically sold before developers finish building the apartments.

“Secondary-home market sentiment can be viewed generally as a barometer of the property sector, as pricing and supply are not subject to regulators’ intervention – unlike the new-home market,” the Fitch analysts said.

According to the analysts, more than half of homes sold in China’s largest cities are in the secondary-home market, which has a significant impact on new home prices.

Market expectations for a recovery are high, which explains the poor performance in May.

The People’s Bank of China had found in a quarterly survey that locals would be more interested in purchasing a home in the coming months and had higher expectations for higher property prices.

In a written commentary, market analyst Liu Lijie of Beike Research Institute stated that the real estate market is still in a “period of adjustment.”

Liu stated that market expectations for a real estate recovery must be improved by government policy, noting that additional measures can be taken to boost home buying even in large cities.

Credit: CNBC

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