Beijing’s comprehensive crackdown on the leverage of real estate has caused a large number of defaults among property developers. Some analysts warn that China’s real estate debt crisis has just begun.
As reported by Bloomberg on July 7, Charlene Chu, a senior analyst at Autonomous Research – a division of Sanford C. Bernstein & Co. – estimated that there would be 30 companies defaulting with total liabilities of around 1 trillion dollars.
In a June 15 interview on the One Decision podcast, Chu said that while collaterals secured bank loans to developers, the situation could worsen if lenders started revaluing collaterals at lower prices.
Chu explained, “We’ve got a property sector that is almost dead and barely growing and used to employ huge numbers of people and a lot of downstream industries for furniture and home goods and electronics and appliances.”
She added, “All of that is getting impacted by this property slowdown, and that’s why I think we’re still early in the game here.”
She also mentioned that China’s working-age population, a real estate consumer group, peaked at 801 million in 2015 but has declined by 20 million since then. As debt expands throughout the economy, she believes this will be one of the structural issues affecting China’s economic growth.
Chen Long, an economist at Beijing-based consulting firm Plenum, echoes that China has to make sure defaults in the real estate industry don’t lead to a broader financial crisis. Besides, the mortgage rates must be set to stay well above the 2014 slump. He adds that China’s central government officials “don’t want to take the blame if things get out of control again.”
The home prices of the world’s second-largest dropped for the 9th month in May; signaling demand stays weak despite the government’s increased support for the slumping property market.
Sales in major cities fell over 40% from May as lockdowns suspended businesses and unemployment surged.
Lu Ting, the chief China economist at Nomura Holdings Inc., comments that this is the worst property downturn on record.
Iris Pang, the China economist at ING Groep NV, states that employment has to recover to increase demand for housing. This depends heavily on the chance of lockdowns in the future, and she doesn’t expect a rebound in sales until 2023.