China’s Property Sector Struggles to Recover Despite Signs of Improvement

China’s Property Sector Struggles to Recover Despite Signs of Improvement

Despite early indications of a recovery in China’s property sector, new data shows that it is still struggling to turn around. An increase in housing prices was observed in May, but sales slowed down significantly. Commercial property, on the other hand, experienced a sharp decline in both pricing and transactions. The poor results in construction, reduced fiscal activity, and other factors have led to a contraction in copper producers’ earnings and production.

The Current State of the Property Sector

China’s property sector and related industries account for more than a quarter of the country’s economy, according to Moody’s estimates. New home sales for the week ending May 28 grew by 11.8% from the previous year. However, this is a significant slowdown from 24.8% growth the week before. The sales volume for both weeks was also lower than it was during the same period in 2019, before the pandemic. Most of the sales decline was observed in China’s largest cities, which are typically a bright spot since people tend to move to urban centers for jobs.

Investor Skepticism

Investors in Chinese property developers are becoming increasingly skeptical about the market. The Markit iBoxx index for China high-yield real estate bonds is back down to near where it was trading in November, when Beijing announced support for the sector through a “16-point plan.” While this plan has been instrumental in setting a floor to the crisis, the initiatives are only aimed at supporting developers’ debts at a project level. Analysts from S&P Global Ratings have stated that there is still uncertainty about whether developers can repay investors for bonds at a holding company level.

The Secondary-Home Market

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 the first quarter of 2023, indicating that homebuyer confidence remains fragile amid an uncertain economic outlook and weak employment prospects. The secondary-home market sentiment can be considered a barometer of the property sector, as pricing and supply are not subject to regulators’ intervention, unlike the new-home market. The Fitch analysts estimate that more than half of homes sold in China’s largest cities fall into the secondary-home market.

While the Chinese government has eased its pressure on real estate developers in the last year following a crackdown on their debt levels in August 2020, the property sector is still struggling to recover. The weak performance in May comes amid elevated market hopes for a recovery, and analysts predict that China developer sales will fall by about 3% to 5% for all of 2023. Government policy needs to improve market expectations for a real estate recovery, and additional measures can be taken even in large cities to boost home buying.


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