China’s economy could be dragged down by loss of confidence in the real estate sector
Loss of confidence in China’s real estate sector could fuel contagion that would further dampen China’s economy, analysts have warned.
The comments come after embattled developer China Evergrande Group failed to deliver a promised $300 billion restructuring plan over the weekend.
In documents filed with the Hong Kong stock exchange, Evergrande instead said it had put in place “preliminary principles” for the restructuring of its offshore debt. It also said one of its subsidiaries, Evergrande Group (Nanchang), was ordered to pay an unnamed guarantor 7.3 billion yuan ($1.08 billion) for failing to honor its debts.
“For the government, the priority is to break the negative feedback loop that characterizes the high debt ratio and the shortage of liquidity from developers,” said Shuang Ding, Standard Chartered’s chief economist for Greater China. and North Asia, on CNBC’s “Street.” Asia sign.
“That leads to a mortgage boycott and very low buyer appetite, and that comes down to the developer as low sales affect their liquidity.”
China is facing a mortgage repayment revolt, with homeowners in 22 cities refusing to repay loans on unfinished housing projects.
“So if this problem is not handled properly, it will have a profound impact on the economy, including the government’s balance sheet, the bank’s balance sheet as well, and households,” Ding said.
Ding said the problems in China’s real estate sector threaten a crucial foundation of a strong economy: market confidence.
Land sales, which constitute a major part of the provincial government’s revenue, have fallen by 30% over the past year.
The economist said Beijing should narrow down the problems in the real estate sector and deal with them holistically, rather than with a piecemeal approach, in a bid to avoid mass insolvencies.
Dan Wang, Hang Seng Bank’s chief China economist, said the government could achieve this by ensuring struggling companies have enough money to finish building half-started houses or complete a building. project sold.
China’s political bureau signaled last week that the country could miss its 5.5% GDP growth target for the year, as new data showed Chinese factory activity had contracted sharply. unexpected in July after rebounding from the Covid-19 closures in June.
While Beijing takes the crisis in the real estate sector seriously, the Evergrande crisis is unlikely to be resolved anytime soon and never at all, said Sandra Chow, co-director of Asia-Pacific research at CreditSights.
“I think it will take a long time for investors to have confidence not just in Evergrande, but in the Chinese real estate industry as a whole,” Chow said.
“The Chinese real estate market is still struggling, despite all the easing measures and asset values continue to decline, especially in lower tier regions as well. So it is going to be very difficult to restore confidence.