Signs of improvement after a dark year but a golden age now over: burned by the real estate crisis, some Chinese developers are beginning to see the end of the tunnel in a market that is set to slow down for a long time.
The real estate sector in China has experienced rapid growth since its liberalization in 1998, in a country where the acquisition of property is often a prerequisite for marriage and an investment.
For two decades, developers have been able to develop at high speed thanks to bank loans, but their debt has swelled so much that the authorities have decided to put a stop to it from 2020.
Since then, their access to credit has drastically reduced while demand for real estate has taken a nosedive, against the backdrop of an economic slowdown and a crisis of confidence.
This phenomenon was exacerbated by the virtual bankruptcy of the now ex-number one in the Evergrande sector, and won over the other promoters, shunned in turn by potential buyers for fear of similar setbacks.
Evergrande said in early April that its restructuring plan had been negotiated and approved by a group of international creditors, a major step towards alleviating its abysmal debt.
In China, the majority of new properties are paid for before the work even begins.
Real estate experienced last year “its worst contraction in history” with sales down 24%, said Rosealea Yao, of the firm Gavekal Dragonomics, specializing in the Chinese economy. The health crisis has been an aggravating factor of “anxiety”, which has prompted many potential buyers to postpone the purchase of a property, underlines Ms. Yao.
The sector was also heckled by a monthly payment strike by some owners, exasperated by the interruptions to construction sites by a number of promoters due to lack of cash. Their bloodshed further aggravated the crisis.
After a dark year, “the Chinese real estate market has shown signs of stabilization” since the start of 2023, according to the rating agency Fitch.
In March, the main cities in China experienced a significant increase in property prices, according to figures released last Saturday by the National Bureau of Statistics (NBS). Of the 70 cities that make up the official reference indicator, 64 were thus concerned (compared to 55 in February and 36 in January).
“This is a strong signal that the long-awaited recovery is finally taking root,” analyst Shehzad Qazi of research firm China Beige Book told AFP.
“A rebound is possible in the next few months, but in the long term – next year or the next – I don’t see more,” said John Lam, who follows the Chinese real estate market for UBS bank. And to argue: “the Chinese population began to decline in 2022”, a trend set to continue and which will inevitably weigh on the demand for real estate.
In addition, the “speculative demand does not return”, reports to AFP Mr. Lam, at a time when the power hammers that the housing is made for “living there, not for speculation”.
Thus, real estate will experience “periodic rebounds” but the era of rapid growth is “probably over”, believes Shehzad Qazi.
Real estate, which together with construction accounts for around a quarter of China’s GDP, is an essential pillar of the country’s growth. It is also an important source of income for local authorities, whose finances are depleted after three years of staggering expenditure to fight the Covid.
To revive a struggling sector, the government seems to have adopted a more conciliatory approach since November, with targeted support measures for the financially soundest promoters with mixed results.
In March, the number of new housing starts contracted by 29% year on year (after a decline of 9.4% in January-February), according to the latest figures from the SNB. This is despite a low base of comparison with 2022 when real estate in China was in turmoil.
The sector is on “the road to recovery but it’s not out of the woods yet,” warns economist Larry Hu of investment bank Macquarie.
“Developers remain cautious and prioritize completing existing projects over launching new ones,” Hu said. And the recovery is mainly benefiting major cities like Beijing and Shanghai, which have regained their 2019 dynamism, according to Rosealea Yao.
04/23/2023 16:52:05 – Beijing (AFP) – © 2023 AFP
