China continues to insist that its real estate market is not in crisis, although almost all signs point to the contrary.
- The IMF said in a report on China’s economy that the country’s property crisis remains “unresolved.”
- But China responded by saying that its real estate market is “generally running smoothly and not in a ‘crisis’ situation.”
- China’s real estate market has long been mired in debt problems. last few years.
The troubles in China’s property market may be well documented, but Beijing insists there is no crisis.
And this is contrary to the views of the International Monetary Fund or the IMF. On Friday, the IMF released its annual review of China’s economy, which said the real estate crisis “remains unresolved” and that the country’s economic growth remains “under pressure.”
But China takes the opposite view, saying in a Jan. 12 IMF response included in the Fund’s report that the country’s real estate market is “generally running smoothly and not in a ‘crisis’ situation.”
“The authorities are aware of the risks and are working to address them,” said Zhengxin Zhang, China’s representative on the IMF’s executive board, and Xuefei Bai, the IMF’s policy adviser. “It is inappropriate to exaggerate the difficulties in the market and the potential impact on the financial sector.”
The IMF said China’s real estate crisis “intensified” in 2022.
The IMF said in a report Friday that China’s real estate crisis has “intensified” in 2022.
“Increasing pressure from an unresolved property crisis could trigger a sharp contraction in aggregate demand, with adverse macro-financial feedback loops and potentially large external spillovers,” the IMF said, calling for “further action” at the national level by increasing funding to complete frozen projects.
This could help pave the way for market restructuring and limit financial risks, he added.
Despite China’s efforts to reassure investors of the health of its real estate sector, more than half of mainland China’s 60 registered developers are likely to suffer losses in 2022, according to Bloomberg’s calculations based on publicly available data. In addition, according to official data released on January 17, China’s real estate investment in 2022 fell by 10% compared to last year.
The average net debt-to-equity ratio of the top 80 real estate companies rose to 152% by the second quarter of 2022, doubling from mid-2020 before debt restrictions were imposed on developers, Reuters reported citing Reuters. This was stated by analysts of the State Chinese Academy of Social Sciences.
Zhang and Bai of China acknowledged in their response on January 12 that the Chinese real estate market has entered a “new environment” in 2022 due to various factors such as shrinking demand, weaker market expectations, the pandemic, and liquidity problems for some developers. . But the balance sheets of listed developers showed an improvement in the ratio of liabilities to assets in the first half of 2022, they write.
The Chinese authorities are also supporting “prudent market financing,” they said, adding, “The current development of the real estate market is a natural evolution of ‘deleveraging and destocking’ over the past few years.”
“The risks associated with this are local in nature and concern only individual firms, and their impact on the rest of the world has been relatively small,” they added.
Beijing began to limit excessive borrowing in 2020
The sharp swap comes amid an ongoing debt crisis in China’s real estate sector after Beijing began curtailing excessive borrowing in 2020, which contributed to debt problems for major property developer Evergrande.
A cash crunch has brought construction to a halt, raising concerns that buyers may never see the apartment they pay for.
Banks have also tightened lending across the real estate sector amid Evergrande’s liquidity crunch, raising fears of a domino effect on the financial sector in China and the rest of the world.
The debt crisis also had profound social consequences. Chinese millennials, for example, are grappling with an existential crisis over home ownership over concerns about whether developers will be able to rent out apartments buyers have paid for, Insider’s Cheryl Tech wrote in October 2021.
“The real problem is that many developers are simply not generating positive cash flow and that the funding model for unlimited presales is broken,” Andrew Lawrence, Asia real estate analyst at TS Lombard, wrote in a Jan. 12 note seen by Insider.
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