What’s happening to China’s housing market?

Friday 5 Nov 2021

On Oct 7, dozens of homeowners gathered at the sales office of a new residential development in Nanyang demanding refunds. The value of their homes depreciated at least 30 per cent in less than a year since purchase. The average price of housing in a neighbouring project by the same developer dropped more than 40 per cent.

Nanyang, a city of nearly 10 million people in central China's Henan province, is a microcosm of the real estate market in China's third- and fourth-tier cities. In the past few years, with large inflows of migrants from rural areas into smaller cities like Nanyang, developers such as China Evergrande Group and Country Garden Holdings rushed in to build housing.

Then the central government, concerned about risky overheating in the property sector, moved to cool things down. Since President Xi Jinping declared in 2017 that "houses are for living in, not for speculation," policymakers have imposed a series of measures to limit rampant borrowing by developers and tighten standards for mortgage lending. The real estate sector's industry-wide chill reflects those policies as the world's most populous nation still faces a housing shortage, industry experts say.

Since the government curbed their borrowing ability last year, developers are experiencing a sharp drop in home sales, adding to their financial burdens. Since September, nine developers' credit ratings or outlook have been cut about 20 times. The debt crisis that may lead to the collapse of Evergrande, one of the country's largest developers, has heightened market concerns.

As a result, developers have lost their appetite for real estate, which will put fiscal pressure on local governments that rely heavily on land sales. That pressure will in turn constrain funding for infrastructure and weigh on economic growth.

Housing chill across China

Meanwhile, sales of existing housing have cratered under pressure on mortgage loans imposed by multiple cities. A broker in Hunan province told Caixin that his company's sales of pre-owned housing plunged to 30 per cent-40 per cent of sales in the same period last year.

The sector is feeling the pinch of reference price mechanisms set by city governments that limit the amounts that financial institutions can loan to home buyers. In February, Shenzhen set reference prices for pre-owned properties in 3,595 residential compounds and prohibited banks from processing loans at amounts higher than the reference prices. Since then, sales of pre-owned homes in the city declined every month to 1,765 units in September from a normal range of 5,000 to 8,000 a month.

Other provincial capitals like Sanya, Chengdu and Xi'an followed Shenzhen. Reference prices of most of the pre-owned properties to be included in the Guangzhou system were cut by 30 per cent-50 per cent from market prices.

Many sellers found the reference prices "unacceptable" and have taken a "wait-and-see attitude," which led to a sharp decline in transactions, said Huang Tao, manager at Centaline Property Agency in Guangdong.

At a recent new project in downtown Guangzhou, where new units routinely sold out in minutes, the developer now offers broker’s commissions of as much as 100,000 yuan (S$20,954) a unit. China Vanke, a top-three developer that never used to worked with brokers, recently signed agent agreements for two projects in Shenzhen, according to a local broker.

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Source: Caixin Global, StraitsTimes

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