China’s property market is in the midst of a total collapse in confidence — and it looks like only the government can save it.
And it’s going to be much more than the 200 billion yuan they pledged this week. Rating agency S&P puts the figure needed to rescue the market at 700 to 800 billion yuan or several multiples of that in the worst-case scenario.
To be clear, it’s a property market in which prices have dropped, sales have slumped, developers have gone under, and buyers are staging a protest through a spreading mortgage boycott for having made to pay — largely upfront — for properties that have not been completed.
About 2 million presold homes remain unfinished, according to estimates from S&P. This figure is just expected to increase if current conditions prevail.
Prices for homes in new developments in 70 Chinese cities dropped by 1.3% year on year in August. Research from Citigroup released this week shows that even state-owned property developers are at risk of surging default, driving up bad debts. Citi’s data shows that 29.1%, or almost a third of all property loans are now classified as bad debts, up from 24.3% at the end of 2021.
Government measures have so far not been enough to bring back buyer/homeowner confidence as more have joined the mortgage boycott since August. Homeowners have also grown more aggressive in their demands to justify their mortgage boycott, with many pointing out more issues such as poor quality and noise pollution.
“Fixing the property downturn is important to the economy and social stability, two major objectives of the government,” S&P said. “The downturn has now hit a point where the government may feel the need to establish a definitive turning point.”
Information for this briefing was found via Bloomberg, The Guardian, The Economist, and the sources and companies mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.