Chinese Property Slump Extends Into September

China’s giant housing market slowed substantially in September, official data showed, as the country’s debt-saddled developers cut spending and demand from home buyers waned.

Monday’s data builds on recent reports from individual real-estate companies showing punishing drops in sales. It also underscores how property-market weakness, already evident in lackluster August figures, hasn’t abated as the industry enters what is traditionally a much stronger period for home sales.

Investments made by property developers fell 3.5% in September compared with last year, according to data released by China’s National Bureau of Statistics on Monday. It was the first time property investment had fallen year-over-year after growing quickly since the beginning of the coronavirus pandemic.

Home sales by value fell 16.9% in September from a year earlier, while the floor area of new construction projects that were started in the month fell 13.5%. Both measures had already dropped sharply year-over-year in August, falling 19.7% and 17%, respectively.

The data paint a bleak picture for China’s property market and the many developers that had banked on strong housing sales to help pay off large amounts of borrowings. Global investors have turned bearish on the prospects of Chinese real-estate developers, sending their dollar bond prices to deeply distressed levels. The yield on an ICE BofA index of high-yield bonds from Chinese companies climbed above 23% last week, its highest in more than a decade.

“It’s become a lot harder for developers to access financing…at affordable rates, so that’s probably going to result in a further pullback in housing starts going forward,” said Julian Evans-Pritchard, senior China economist at Capital Economics. “I think policy makers are willing to take measures to support housing demand but they’re less willing to take measures to support developer-borrowing.”

A string of property developers—starting with industry giant China Evergrande Group—have missed payments on their dollar bonds over the past month, and defaults are rising.

Late last week, a smaller developer, China Properties Group Ltd., said it had defaulted on $226 million in three-year notes that matured on Oct. 15. A few days earlier, Sinic Holdings, another Hong Kong-listed Chinese developer, warned it was likely to default on bonds that mature on Oct. 18, after earlier falling behind on some other obligations.

Overall, data showed Monday that China’s economy grew 4.9% in the third quarter from a year earlier, slowing sharply from the previous quarter’s 7.9% growth rate, as power shortages and supply-chain problems added to the impact from Beijing’s efforts to rein in the real estate and technology sectors.

“Today’s set of data reconfirmed our view that the property slowdown is one of the main drivers of the current China economic slowdown, on the back of financial tightening and property tightening,” said Mo Ji, chief China economist at Fidelity International.

“Chinese policy makers are striking a delicate balance between growth goals and reform goals,” she said, describing the country’s housing costs as the government’s biggest challenge, next to those of education and healthcare, in its drive to reduce income inequality.

Reprinted by permission of The Wall Street Journal, Copyright 2021 Dow Jones & Company. Inc. All Rights Reserved Worldwide. Original date of publication: October 18, 2021