China’s property downturn deepens

Chinese house prices have fallen for ten months in a row, made worse by a residential “mortgage strike”.

“China’s deepening property bust is sending shock waves through the nation’s 400 million-strong middle class,” says Bloomberg News. House prices have fallen for ten months in a row. That is putting pressure on households, whose leverage has risen from 27.8% of GDP in 2011 to 61.6% at the end of 2021.

A rise in homebuyers going on “mortgage strike” – stopping payments on uncompleted flats – is piling further pressure onto developers, says Evelyn Cheng on CNBC. S&P Global Ratings thinks that Chinese “property sales will probably drop by about 30% this year”. That would be worse than the 20% slump that the market suffered in 2008. China’s housing sales amounted to more than $2trn last year, making the sector a crucial driver of the world’s second-largest economy, says Jacky Wong in The Wall Street Journal.

The mortgage boycott risks fuelling a “vicious cycle: potential homebuyers stay away, which worsens developers’ ability to raise money to complete projects”. The economic fallout from China’s zero-Covid-19 lockdowns is not helping. While Beijing has so far avoided a sector-wide bailout, the economic damage and the stress on indebted local governments are likely to force it to “provide a backstop so that homebuyers regain confidence”.

Don’t count on a “decisive policy shift”, says Nicholas Spiro in the South China Morning Post. Problems in Chinese property are “a direct result of Beijing’s efforts to deleverage the economy and de-risk the financial sector”. To rescue the property developers would be to abandon that goal. Beijing won’t unleash a “shock-and-awe... response” because, as Tyran Kam of Fitch Ratings puts it, the aim is to “stabilise the property sector without bailing it out”.

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