China crisis wipes out $90 billion from developers

Chinese property developers have seen the value of their stocks fall by US$90 billion as the China crisis worsens.

According to Bloomberg, builder and developer share prices have fallen US$55 billion during 2022, while the sector’s dollar notes have fallen by more than US$35 billion.

After hitting its lowest level since 2012 in recent days, Chinese property stocks have lost 27 per cent this year, adding to a 34 per cent decline in 2021, while junk dollar notes are currently at record lows.

As China’s housing market continues to turn down, lawmakers have made it clear that homeowners, not builders, are the priority for efforts to stabilise the market.

On top of the slowdown in sales, tens of thousands of people in China are refusing to pay their mortgages for uncompleted apartments, adding to concerns that the country’s real estate debt crisis could get worse.

Longer term, an ageing population and a policy shift that seeks to redefine real estate as a form of public goods mean the sector’s boom era may have already passed, according to Bloomberg.

Chinese builders’ fortunes have decidedly worsened this year following a relentless official campaign to curb their debt expansion and a year-long slump in home sales.

This has led to an unprecedented cash crunch that is spreading risks to the financial system and also threatens social stability.  

Senior economist at Natixis SA, Gary Ng said Beijing had made recent moves to ensure the completion of stalled projects.

“The aim of the rescue measures is to save the property market and household confidence, but not the developers,” Mr Ng told Bloomberg.

“As it is unlikely to see significant policy changes, the golden age of fast revenue growth and high leverage for property developers is probably over.”

So far, changes to help steady the market have included a generalised call for banks to boost lending as well as a reported plan to launch a state rescue fund.

However, authorities appear focused on appeasing angry buyers of unfinished homes amid a boycott on mortgage payments.

According to Bloomberg, Chinese borrowers have defaulted on a record $28.8 billion of offshore bonds this year, nearly all of that by builders.

As economic and population growth slows, China’s property market will likely face an irreversible glut in coming years Bloomberg said.

Top leaders have continually stated that housing is for living and not for speculation, as well as a campaign to ramp up the supply of public housing, meaning real estate will no longer be a high-margin business.

Credit analyst at Bloomberg Intelligence, Andrew Chan said longer term, there will be a change in the real estate business model.

“The industry may turn out to be more state-dominated, so in a sense property prices could be ‘controlled’ – which is in line with the Chinese goal of social stability and quelling social inequality,” Mr Chan told Bloomberg.

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Rowan Crosby

Rowan Crosby is a freelance journalist specialising in finance and real estate.

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