New home prices in China fall for the first time in 6 years

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Real estate prices in China edged down last month for the first time in six years, data showed Wednesday.

The drop came as the industry grapples with a default government crackdown from several large developers, which has added to the contagion concerns of the Evergrande crisis.

The latest reading follows official figures showing the real estate and construction sectors shrank in the third quarter for the first time since the start of the pandemic, taking a heavy toll on the world’s second-largest economy.

Wednesday’s figures showed that the cost of new homes in 70 large and medium-sized cities edged down in September, the National Bureau of Statistics said without giving a specific percentage, although Bloomberg calculations revealed they were had fallen by about 0.08%.

This represents the first decrease since April 2015.

Prices in the secondary market fell 0.19%, a second monthly drop, Bloomberg said.

The latest readings will be seen as of particular concern, as September is generally seen as a peak season for the domestic market, and emerges as real estate companies come into the spotlight after the government began to restrict borrowing.

This in turn limited their ability to continue with their construction and sale plans, putting even more pressure on their bottom line.

The biggest victim of the crackdown is China Evergrande, one of the country’s largest real estate developers, which is on the brink as it grapples with debts of over $ 300 billion.

The company has missed several payments on its bonds and a 30-day grace period on an offshore note is in place on Saturday, leaving investors concerned about what will happen. Yet he managed to meet his national obligations.

Fears the company could collapse and send shockwaves through the Chinese economy – and possibly the world – rocked markets earlier this month, though Beijing said any fallout would be controllable.

In recent weeks, several domestic real estate rivals have already defaulted on their debts and have seen their ratings drop.

Hong Kong-listed Sinic Holdings became the latest to miss a payment, S&P Global Ratings said on Wednesday.

S&P said the latest non-payment “would trigger cross defaults and speed up requests to pay off the company’s other debts … some of which are already past due.”

Mid-sized competitor Fantasia has also failed to meet its obligations in recent weeks, triggering downgrades to “selective default” by S&P and “-CCC” by Fitch Ratings.

China’s real estate sector has come under scrutiny since regulators last year announced caps on three different debt ratios under a program dubbed “three red lines.”

Despite concerns about the sector, Louis Kuijs, Head of Asian Economics at Oxford Economics, said: “While a major real estate slowdown in China cannot be ruled out, we believe the most likely scenario is is a short-term contained slowdown combined with a gradual slowdown, a managed long-term layoff. “


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