China’s homebuyers are slowly but surely declining. That’s according to data from the country’s central bank, despite price cuts and stimulus in the world’s biggest housing market, which continues to collapse. Meanwhile, developers in China are starting to collapse, with real estate giant Wanda Group making headlines this week after the value of its dollar bonds collapsed, ZeroHedge reports.
At the beginning of 2023 local government across the country introduced policies to rescue the failing real estate sector. Everything seemed fine and even started a brief recovery according to real estate research institute China Index Academy. By the end of April, the mortgage rate for first home buyers in more than 40 cities had been lowered to below 4 percent.
However April sales fell short of expectations to the analysts.
According to April 2023 statistics released by China’s central bank, mortgages fell by 241.1 billion yuan ($33.8 billion) in April. Medium- and long-term loans to households, mostly mortgages, fell by 115.6 billion yuan ($16.2 billion), and short-term mortgages fell by 125.5 billion yuan ($17.6 billion).
Flashback to 2009: one of the biggest property markets in the world is sinking
The housing market began to collapse after the Fed raised interest rates
Aftermarket sales in China’s biggest cities showed double-digit declines in April. Beijing is in this statistic with a decrease of 37.3 percent, followed by Hangzhou with 32.7%, Shanghai with 26.71%; Nanjing – 13 percent. The worst decline was in Hefei Prefecture, where there was a 40 percent drop.
This has forced entrepreneurs to lower prices, but that doesn’t just happen in China either. Two real estate developers in Kunshan County were punished by China’s price gouging regulators for “disrupting the normal order of the real estate market and causing social instability.”
China is the largest housing market in the world
According to estimates from “2021 China Housing Market Value Report.” to economist Ren Zeping, the value of the country’s housing market was $62.6 trillion in 2020, compared to $33.6 trillion in the United States; $10.8 trillion in Japan and $31.5 trillion in the UK, France and Germany combined.
According to the “China Wealth Report 2022”, the market value of China’s housing market reached $73.8 trillion in 2021. This represents a 17.9% increase in total market value year-on-year (2020).
Many cities have seen a huge increase in the number of listings for the sale of real estate on the secondary market.
The risk will be transferred to the banks
“The consequences of the collapse of the real estate market and the default on residential mortgages will eventually be passed on to the banks,” Chinese financier Fang Qi told The Epoch Times.
According to him, there are two risks for banks related to residential mortgages. Both situations bring losses and directly weaken the banks’ assets. One is when homeowners default on their mortgage payments because of the ongoing boycott, with many homeowners refusing to make payments on unfinished homes. The New York Times estimates that the boycott could affect up to 4 percent of outstanding mortgages (as of August 2022).
One of the largest and most unaffordable property markets in the world is hungry for 3.5 million homes
The country needs to double its current rate of housing construction to offset the supply-demand imbalance
The second risk is when homeowners pay off their mortgages early, as many Chinese homeowners do. They use personal savings or take out cheap loans under stimulus programs designed for large consumer purchases or to start new businesses.
Analysts estimate that nearly $700 billion in mortgages have been prepaid since early 2022, when banks began cutting interest rates on loans.
Given the situation now where consumers are very cautious about spending, this is actually bad news for banks. Not only are they losing money on existing mortgages, but there is also a shortage of new loans to finance.
Goldman Sachs expects house prices in one of the world’s biggest property markets to fall by 39%
In recent months, 9% of active listings have reduced prices
And construction contractors are feeling the strain. Chinese real estate giant KWG Property said it had defaulted on $31 million in principal due as of April 28.
In late April, Fitch Ratings placed one of China’s oldest and largest real estate giants Wanda Commercial and Wanda Commercial Properties (Hong Kong) on its watch list.
2023-05-25 15:30:04
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