Economic outlook and weak homebuyer confidence sees rally falter
Residential buildings under construction at the Honour of China project in Beijing, originally developed by defaulted Shimao Group Holdings Ltd before sold to state-owned rival China Resources Land Ltd. China's government has hinted at further support for the real estate sector, with a top policy maker describing it as a"pillar" of the world's second-largest economy.
“You can’t put all the money in right now because Covid needs to work its way through, and we have to wait for an economic recovery,” which may not happen until the second half of next year, said Thu Ha Chow, head of Asian fixed income at Robeco Group. Thanks to Beijing’s policy bazooka property markets turned from extreme pessimism to euphoria in just a matter of weeks. Now there are signs the rally is faltering. Graphic: BLOOMBERG
Developers’ contracted sales could decline more next year thanks to Covid and depleted landbanks. Citigroup Inc analysts including Griffin Chan expect sales to fall 25% in 2023, as recovery will be constrained by lower new supply, and buyers’ expectations will take time to turn around. The cash crunch at private developers also hasn’t been resolved. A recent flurry of share placements and stake sales in property management units suggests liquidity remains tight, and debt-saddled builders will have to increasingly rely on bank loans for funding as the offshore credit market gets too expensive.
“Overall I do believe there is a positive turn, but it will play out in what you would call a survivor trade,” said Neeraj Seth, head of Asian credit at BlackRock Inc.
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