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China’s real estate market remains a drag and will put pressure on global growth.
New home prices fell in September, a third straight month of decline, according to data released Thursday by the National Bureau of Statistics (NBS), despite Beijing’s efforts to shore up the sector. The data comes at a time when Country Garden, once the country’s biggest homebuilder, is fighting for its life.
The property slowdown will impact not just China, but also global growth, the International Monetary Fund (IMF) said on Wednesday.
New home prices in 70 major cities fell by 0.1% in September from a year ago, according to a calculation from Refinitiv Eikon based on data from the NBS. On a month-on-month basis, prices dropped 0.2% in September, extending a 0.3% fall in August.
The persistent weakness in the housing market is hobbling China’s economic recovery. The country’s gross domestic product expanded by a better-than-expected 4.9% in the third quarter, according to the NBS on Wednesday. That growth was mainly boosted by robust growth in consumer spending.
But the real estate sector remains a big problem. Property investments plunged 9.1% in the first nine months of 2023, indicating that investor sentiment is getting worse.
The sector, which has accounted for as much as 30% of the economy, fell into crisis more than two years ago after a government-led clampdown on developers’ borrowing.
Beijing has rolled out a slew of stimulus measures to revive growth, including cutting mortgage rates and scrapping restrictions on home purchases in cities. But the efforts have so far failed to sustain a rebound in the market.
The IMF said China’s property downturn will weigh on global growth prospects.
“The global outlook … faces pressures from China’s worsening property crisis, tight policy stances around the world, the consequences of Russia’s war in Ukraine, the most recent conflict, and growing geoeconomic fragmentation,” said Krishna Srinivasan, director of the IMF’s Asia and Pacific Department, at a press briefing.
The fund recently downgraded China’s growth forecast to 5% for 2023 and 4.2% for 2024, citing a deeper property downturn.
Srinivasan said there is need for China to have a “comprehensive strategy” to address the real estate problem, which involves making sure all pre-financed houses are built. In China, most new homes are sold before they are constructed.
“There’s a problem with the developers, which needs to be sorted out,” he said. “Until that’s done, it’s going to affect confidence.”
Many Chinese property developers are grappling with a cash crisis, with high-profile names like Evergrande on the brink of a messy collapse.
All eyes on Country Garden
Country Garden, once the country’s largest homebuilder by sales, is also at risk of default.
A grace period to pay $15 million in interest on a US dollar bond expired this week, with no word of payment from the firm, state-owned Paper.cn reported Wednesday.
It could mark the first-ever default by the property giant on its billions of dollars of offshore debt, which could lead to a debt restructuring.
Country Garden issued a statement on Thursday, threatening to pursue legal action against anyone spreading “malicious rumors” about its founder fleeing the country.
“The company is concerned about rumors that ‘the founder and his daughter may have left the country,’” it said.
“This rumor was posted on multiple online platforms with ulterior motives, causing a negative impact. The founder of our company and the chairman of the group’s board of directors are currently working normally in China,” it added.
Yang Huiyan currently chairs Country Garden. She took over the position in March from her father Yang Guoqiang, who founded the property firm in 1992. Previously, she was one of Asia’s richest women.