China’s property market in decline as wealthy Chinese look abroad for a solution

As the Chinese economy slows, wealthy Chinese are looking for investment opportunities outside of China. This is causing a decline in the property market as buyers look to invest elsewhere. While this may be bad news for China’s property market, it could be good news for foreign countries that are seeing an influx of Chinese investment.

Beijing’s strict real estate policies and deleveraging campaign have had a significant impact on the property sector

New home prices in China are falling at a slower pace as the authorities ease restrictions. However, the sector is not out of the woods yet, analysts say.

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In March, new home prices in major cities fell by 0.07%, slightly less than the 0.13% decline in February.

Director of E-house China Research and Development Institute: “Although the decline was slower, there are still obstacles to a price rebound.”

New home prices in China fell at a slower pace last month as authorities tried to ease restrictions on the property market because slow sales are threatening economic growth.

New home prices in 70 major cities fell 0.07% month-on-month in March. This was slightly lower than the 0.13% decline in February. The data comes from the National Bureau of Statistics.

Chen Xiao, an analyst with Zhuge Zhaofang, said more cities would loosen controls on the property market. She added that the market recovery will continue, although it will be bumpy.

The slowdown in the decline in new home prices in March is a temporary relief for China’s 18.2 trillion yuan ($2.9 trillion) property market. However, the country’s heavily indebted property developers still face cash flow problems and missed payments.

Covid-19 blockades could hamper the recovery of new home prices in China

The debt crises continue to weigh on developers, from large companies like China Evergrande Group and Sunac China Holdings to smaller players like Zhenro Properties.

In addition, contracted sales of China’s top 100 developers fell by 47% in the first quarter of 2022, compared to a year earlier.

In the first quarter, more than 60 municipalities began to ease restrictions on property ownership. Local governments have taken steps to lower down payments, subsidise home purchases, reduce mortgage interest rates and provide financial support to developers.

Senior policy makers have also reduced borrowing costs and increased cash flow to the financial system. At the same time, the Ministry of Finance has halted the introduction of a property tax trial in more cities, citing weak market conditions.

Yan Yuejin (director of E-house China Research) said that although the decline has been slower, there are still obstacles to a rebound in housing prices as prices remain slow in third and fourth tier cities. He added that there are still risks that housing prices will continue to decline.

According to data from E-house China Research, the decline in new home prices in third-tier cities was 0.6 per cent in March compared to a year earlier. This compares with a 4.3% jump in tier one cities and a 1.6% increase in tier two cities, respectively.

China Vanke, the third largest real estate company in China, believes that the “golden age” of Chinese real estate is over.

Chairman Yu Liang is encouraging employees to help keep the company afloat in a declining industry facing a cash crunch.

Vanke said property sales were down 50% from January last year to US$5.6 trillion.

China Vanke’s president has issued a clear call to his employees, asking them to prepare for a brutal battle that could make or break the company.

According to an internal document entitled “You can win, if you have the courage to fight”, Yu Liang said: “We are at our wits’ end” at the company’s annual staff meeting. “Many of our employees do not fully understand the current situation”.

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