Does China have a way out of the housing quagmire? – Tejarat News
According to Tejarat News, China has been involved in the real estate and mortgage crisis for more than a year. The crisis began with Evergrande, the country’s largest real estate developer, and its astronomical debts. Now, after a year, China’s economy has not been able to pull itself out of the housing quagmire.
For example, Country Garden, the largest housing developer by sales volume, has now sold a small number of units in its high-rises along Haiyang Beach, and of these towers, a handful are partially built.
Even adding style to the houses and the presence of shops and restaurants in the construction site are not attractive to the customers and these houses mostly remain empty. The company’s failure to sell homes became apparent when profits nearly disappeared in the first half of 2022.
But Country Garden is not the only Chinese housing developer that has faced such problems. The amount of land sold across the country fell by 24% in 2022, the biggest decline since data for the sector was recorded in 1992. Investment in property has also decreased by 10% compared to last year for the first time.
Quoted from EconomistEvergrande, the world’s most indebted homemaker, which collapsed in 2021, has yet to present a restructuring plan due in July. The decline in activity was disastrous for China’s economy, which derives about a fifth of its GDP from this sector.
But Chinese policymakers are trying to save the real estate sector. After two years of forcing homebuilders to deleverage, which drove dozens into default, lawmakers are now scrapping many of those measures, hoping to revive consumer sentiment. This has led to some optimism in the sector, with Country Garden’s share price tripling since October, despite the bleak outlook in Haiyang.
What are the reforms of the Chinese government in the housing sector?
The exact content of the government’s reforms remains unclear. But the policy of granting loans to housing developers and the resumption of stopped projects are included in this policy. Companies started receiving loans in the last month of 2022 and before the official announcement of the government to adopt this policy and showed that such a policy was effective. Local authorities are also reducing mortgage interest.
About 60 percent of homes sold from 2013 to 2020 have not yet been delivered to their owners. Some have yet to be completed, and fears of unfinished projects have dampened demand. The program is showing early results, including a 6 percent increase in construction project completions in December, recovering from an 18 percent decline from the previous month.
It was the unfinished houses that caused the buyers to protest and stop repaying the mortgages. The lifting of coronavirus restrictions helped the reform process, with sales of second-hand homes in China’s 50 largest cities increasing by more than a fifth in the first 10 days of 2023 compared to the previous month.
In addition to this reform program of the country’s housing sector, it has given incentives to some foreign investors to return. According to Morgan Stanley’s analysis, all these efforts can help stabilize the housing market and revive sales in the second quarter of the year. But the crooked and sickly housing situation of this country also entails the risk of excess supply, and the excessive budget will bring back the same problem as before; Especially at a time when China’s population is on the decline.
JPMorgan Bank estimates that the vacancy rate last year reached 7 percent in China’s largest cities and 12 percent in second-tier cities, well above the global average. About 70 percent of homes sold since 2018 were purchased by people who already owned at least one home.
Some argue that the campaign caused huge problems for China’s economy, but without it the situation would have been much worse. If the government ends up injecting more money into the sector to save investment, it could lead to another wave of oversupply and more empty projects in China.