No more ghost cities for China

TS Lombard with the note

After leading the recovery last year, real estate investment is set to decelerate under macro and sector-specific deleveraging campaigns as well as higher input costs. We expect property investment to reach 5% yoy in H2/21 from13% you in April. The slowdown will hit local government financing and investment. The combined impact on property and local government funding is negative for growth and commodity prices. Nevertheless, authorities will be pleased real estate FAI is finally slowing after nine months of concerted policy pressure. The slowdown will help Beijing rebalance the post-Covid economy and take some of the heat out of PPI.

Land sales and developer access to funding typically lead real estate FAI by six to nine months(Chart 1below). Financing and land purchases have both slowed since the “three red lines” on property developer leverage were unveiled in October. The impact is most evident in land purchases, which are highly leveraged. In April, new purchases by real estate firms declined to-9.5% yoy vs 2019.

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