China housing market slumps again as another developer runs into trouble

House prices, sales and construction all fell in November as Shimao Group shares plunge and Beijing assesses what to do with Evergrande

China’s giant housing market has continued to decline in the past month and another major developer showed signs of financial distress as state-owned enterprises began carving up the carcass of the failing property giant Evergrande.

House prices, sales, investment and construction data released on Wednesday all showed renewed signs of the crisis in the market, which accounts up to 30% of the country’s output and which appears certain to drag on the world’s second biggest economy.

It comes a day after shares in one of China’s largest developers, Shimao Group, fell 20% on concerns that it was offloading assets to manage its spiraling debts.

New home prices fell 0.3% month-on-month in November, the biggest decline since February 2015, according to Reuters calculations. The figure was worse than the 0.2% drop in October and only nine of 70 cities tracked by the Chinese statistics bureau saw monthly price gains in November, the fewest since February 2015.

The actual value of home sales plunged by 16.31% in what was a fifth straight month of decline, official data showed. New construction starts as measured by floor area fell 21.03% on year in November, down for the eighth month, while property investment by developers fell 4.3%.

“Cities of all classes are under pressure,” said Yan Yuejin, director of Shanghai-based E-house China Research and Development Institution. “The current scale of market supply is large and demand is weak. The key is to accelerate inventory de-stocking to stabilise home prices.”

However, more data released on Wednesday showed that weak demand for houses was in line with other metrics across the whole Chinese economy.

Real retail sales increased by just 0.5% on an annual basis – down from 1.9% in October – to give the weakest outcome since August 2020, and far below pre-Covid levels as consumers remained cautious and Covid outbreaks continued to cause snap lockdowns.

Passenger traffic data suggested that people were not travelling and spending as much, and sales during the annual November 1-11 shopping festival – China’s answer to the US “Black Friday” consumer spree – slowed compared with the previous year.

Industrial output picked up last month after power shortages eased from the previous months but economists said the overall picture was becoming more bleak.

Gerard Burg of Westpac in Australia said there was little sign of improvement in underlying economic conditions in November and was cutting the bank’s forecast for China’s economy.

“Overall, growth in industrial production was only marginally stronger, investment trends remained extremely weak and retail sales data point to minimal consumption growth,” he said.

China unveiled a package of measures earlier this month in order to bolster the struggling economy, including freeing up banks to lend more money to targeted businesses.

Many economists expect the central bank to reduce the main interest rate from its current 3.85% – very high compared with every major western economy – and more fiscal measures to boost economic activity are also seen as likely in the new year.

However, the crisis engulfing the property market looms over the economy in the wake of the default last week of China Evergrande, once the country’s second-biggest property developer. It finally succumbed to its $300bn debt mountain when it failed to come up with $82m owed to offshore creditors, and analysts have said a huge restructuring effort is now underway.

Reports on Wednesday said that a working party sent by the government to Guangdong, Evergrande’s home province, had arrived at the company’s headquarters in order to start work on carving up the once-all conquering empire built by former steel executive Xu Jiayin.

The working party comprises of representatives of state-owned monoliths such as Guangdong Holdings and the government-owned investment bank, China Cinda Asset Management.

But while the state seems set to absorb Evergrande’s debts and to carry out the huge task of delivering around 1.6m as-yet unfinished homes to buyers who have already paid upfront for the properties, the developers that were previously thought secure are running into financial trouble.

Shares in Shimao Group, which was one of China’s top-10 developers last year and investment grade-rated until a month ago, fell a record 20% on Tuesday after it sold assets between different parts of the company and cancelled apartment sales.

Its bonds also fell in price and yields rocketed in a reflection of the risk to investors of lending money to the company. A Bloomberg index of property developer stocks in China fell to its lowest since early 2017, and Evergrande’s shares dropped almost 10% to a record low.

A report by S&P warned in November that up to one-third of Chinese developers could experience financial distress in the next 12 months because of the weak demand for housing and the crackdown by Xi Jinping’s government on what it regards as the industry’s reckless “borrow and build” model.

Original article

Photo: House prices are falling in China and slower than expected retail sales also showed that the economy is weakening. Source: Noel Celis/AFP/Getty Images.

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