China’s property market continued its downward spiral in August, with new-home sales from the top 100 real estate companies plummeting by 22% compared to the same period last year. This represents a further acceleration of the decline, surpassing the 19.7% drop experienced in July, according to preliminary data from China Real Estate Information Corp. The value of transactions also decreased by 2.43% from July, following a significant 36% month-on-month decline. This accelerating downturn underscores the diminishing effectiveness of the rescue package introduced in May, raising concerns about the market’s ability to recover.
The struggling property sector is a significant drag on China’s economy, adding pressure to the government’s efforts to achieve its 5% growth target for the year. The crisis, which has unfolded over the past two years, has had a ripple effect on the job market, consumption, and household wealth.
In response to the escalating situation, at least 10 city governments have relaxed or completely removed new-home price controls, allowing market forces to play a more prominent role in influencing prices. This move aims to encourage real estate companies to reduce prices and stimulate demand.
To address the issue of unsold homes, China is exploring a new funding option for local governments. Under this proposal, local governments would be able to purchase unsold homes using funds generated from special bonds, effectively supporting the market. As of July, China had a staggering 382 million square meters of unsold new homes, equivalent to the size of Detroit, according to official data cited by Bloomberg.
Cash-strapped developers, many of whom have been in default for over a year, are relying on a sales revival to persuade debt holders and avoid liquidation. Recently, Dexin China Holdings Co. was ordered to liquidate by a Hong Kong court, while Country Garden Holdings Co. is considering extending payments on some of its yuan bonds again, as reported by Bloomberg News earlier this week.
Some property developers are resorting to unusual promotions to help clear the large numbers of unsold homes across the country. Despite these efforts, the property market’s future remains uncertain, and the Chinese government faces a significant challenge in stabilizing the sector and preventing further economic fallout.
