The Chinese property market has been shaking in recent months by the debt crisis at Evergrande and other firms showing signs of financial insecurity. The key driver behind what we are seeing in the market is a decrease in confidence in both prospective property buyers and real estate developers.
Problems are only getting worse. The latest data shows that the price of new properties saw its biggest month-on-month drop since October of 2015, slipping down 9.2%. Chinese families tend to avoid real estate purchases when prices are falling, which can result in lower sales and further price declines.
Beijing’s recent announcement of a property tax to discourage the buying of houses as an investment opportunity will damage the sales sentiment more. Fewer homes are being built as compared to the previous year. Construction statistics are down 7.7%.
China’s economy is slowing to the lows seen long back in the 1990s — a price President Xi Jinping is willing to pay to reduce the dependence on the real estate sector. The Chinese property market which accounts for about one-fourth of GDP has declined sharply since May, as many developers like Evergrande are facing a liquidity crunch due to the government’s decision to stop them from funding projects off leveraged capital.
At the same time, Beijing is concerned about risks to social stability if constructors are unable to finish pre-sold projects, so, officials will try to ensure existing projects are finished. That means overall investment in property can grow next year onwards even if sales decline.
OneVoice 