A month later and little has changed. Chinese property is still royally stuffed.
There has been a little easing for developer spreads:
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But sales remain awful:
As are land sales, still down 70% year on year:
Land sales measured in area in China’s 300 major cities reached 2.05 billion square meters in 2021 as of December 28, sliding 22% from the same period in the previous year, and the value of the land sales declined by 10% to 6.25 trillion yuan, according to data from the China Real Estate Information Corporation (CRIC).
Due to tightening financing for the real estate sector and a downtrend in China’s housing markets, the country’s land markets witnessed heated transactions with surging price premiums in the first half of the year, followed by a sharp cooling in the second half of the year, according to the report.
…The top 100 property developers’ ratio of land purchases and property sales was only 0.25 in 2021, marking a new low in five years, falling by 0.12 from the previous year and sliding by more than 50% from a peak in 2017, according to the report.
By quarter, as property developers mostly had adequate funding during the time most regions had the first round of land auctions last year, the ratio of land purchases and property sales hit 0.38 in the second quarter, the highest level for the year.
However, as the authorities tightened financing to the sector in the second half of the year and an increasing number of developers faced debt repayment pressure and liquidity crunch, the ratio declined to only 0.12 in the fourth quarter, according to the report.
Among the top 100 propety developers, more than 60% saw the value of land purchases decline in 2021 from the previous year, while nearly 30% of the developers saw the value tumble by as much as 50%.
In particular, some leading developers including Shimao Group and Yango Group saw investment activities nearly stalled since August last year, while some medium- and small-sized property developers saw investment tumble by more than 70%.
CRIC believe that, although the authorities marginally relaxed some restrictions on real estate financing and land auctions, developers are expected to continue to see difficulties, judging from their property sales and financing conditions.
The short-term market rebound is not solid and looking ahead, it may take 3 – 6 months for real estate investment to recover, it said.
Against the backdrop of a deleveraging trend, boosting property sales, accelerate cash collections and ensure stable cash flows will continue to be developers’ top priority, according to the report.
This means that infrastructure will also struggle as local government funding remains constrained. This will be despite any front-loaded bond quota.
The incremental policy moves continue but remain insufficient:
In previously unreported window guidance issued last month, regulators told banks to step up lending to developers after at least two quarters of consecutive declines, people familiar with the matter said, asking not to be identified discussing private information. At the same time, borrowing by major property firms used to fund mergers and acquisitions will no longer be counted toward the “three red lines” metrics that limit debt, said the people.
…“The tightest phase is behind us,” said Larry Hu, head of China economics at Macquarie Group Ltd., who nonetheless called the measures “marginal.” More meaningful steps to boost the market would be loosening purchase curbs and reductions in the down-payment ratio as well as the five-year prime rate, he said. Real stimulus targeting the property market might not come until the middle of this year, he said.
That sounds about right if the past is any guide. Let’s wait and see what kind of growth target Beijing sets. Anything above 5% will require more property juice.
As things stand, the property sector is going to be a much larger drag on growth than anybody has in their numbers.