Problems in China’s troubled property sector are expected to intensify this year, according to a poll of analysts, who say sales could plunge by more than 20% this year.
Economists say a bigger and faster drop is sales is likely as homebuyers remain cautious.
New home prices are expected to fall 1.4% in 2022, according to a survey of more than 10 analysts and economists polled between August 29 and September 2. In the May quarterly survey, analysts had expected prices to remain unchanged for the year.
Property sales were seen slumping 24.5% in 2022, a far bigger drop than the 10% fall forecast in the May poll.
The property sector, which accounts for about a quarter of China’s economy, has lurched from crisis to crisis since the summer of 2020 after regulators stepped in to cut excess leverage, causing some developers to default on their debts and struggle to complete projects, resulting in homebuyers threatening to stop making payments.
The struggling sector is weighing on the outlook for the world’s second-biggest economy, which narrowly escaped a contraction in the second quarter due to widespread Covid lockdowns.
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“Uncertainty over China’s growth prospects and concerns about project incompletion will largely drive weak homebuyer demand over the next six to 12 months,” Daniel Zhou, an analyst at Moody’s in a research note, said.
“Covid-19 disruptions to business activity and sales execution will also dampen consumer sentiment, while buyers’ expectation of weaker property prices will delay property purchases.”
While authorities have taken a series of measures to prop up the sector this year, analysts in the poll said more was needed.
More than 200 cities have introduced measures to help the property sector, such as providing cash subsidies and allowing smaller down payments for house purchases.
China’s central bank also cut benchmark lending rates on August 22 to reduce costs for homebuyers.
“Multiple easing policy measures are needed to stabilise the property sector, such as relaxing curbs on purchase, re-selling and lending in second-tier cities,” said Huang Yu, an analyst at real estate research firm China Index Academy.
“China must also step up financing for some developers and ensure housing projects which have not yet been finished are delivered to buyers.”
Next year, economists expected home prices to improve but sales to remain downbeat.
New home prices were seen rising 2.0% year-on-year in the first half of 2023, but sales were expected to fall 15% due to ongoing sluggish demand, according to the Reuters poll.
“The pace of recovery of the real estate market is still dependent on the pace of macroeconomic condition, Covid-19 control restrictions and the strength of policy support,” Yu added.
- Reuters with additional editing by Jim Pollard
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