New construction starts in September fell 13.54 percent from the year prior, the third month of double-digit declines, according to Reuters calculations based on January–September data released by the National Bureau of Statistics on Oct. 18.
Property sales by floor area also dropped 15.8 percent in September, down for a third month, according to Reuters calculations.
The overall slowdown in the sector was underscored by a 3.5 percent drop in property investments by developers in September, marking the first monthly decline since the height of the CCP (Chinese Communist Party) virus pandemic in China from January to February 2020.
While the recovery in 2016 saw tens of thousands of real estate firms borrowing heavily to build homes, China has this year moved to clamp down on real estate, tightening regulations and capping lending from banks, leaving cash-strapped developers hitting the pause button on projects and some firms facing the prospect of liquidation.
“All the data are poor,” Zhang Dawei, chief analyst with property agency Centreline, told Reuters.
“Financing is hard, sales are tough, so of course, there has been no enthusiasm to build. For the first time in history, developers are encountering two blockages—blockages in sales and blockages in financing.”
Fears are also growing that the potential collapse of China Evergrande Group, which is more than $300 billion in debt, could spark broader problems for the country’s financial system if not stabilized.
Shares of the group have fallen by more than 80 percent in 2021 as it struggles with crippling debt. Evergrande has been scrambling to raise funds to pay its many lenders, suppliers, and investors, but has warned on multiple occasions that it could default.
The real estate sector accounts for a quarter of China’s gross domestic product.
China’s central bank on Oct. 15 stated that the debt crisis plaguing Evergrande is “controllable” and unlikely to spill over into the rest of the economy.
“The Evergrande Group has poorly managed in recent years and failed to exercise prudence according to changing market conditions,” Zou Lan, head of financial markets at the People’s Bank of China, told reporters in a press briefing. “Instead, it has blindly diversified and expanded its business.”
About $89 billion of Evergrande’s liabilities are in loans and bonds, making up just under a third of the total. As Evergrande’s creditors are “scattered,” there’s no major risk to any particular financial institutions, Zou said.
Zou added that land and housing prices are forecast to continue steady growth, and that “most real estate enterprises have been operating stably with good financial indicators,” meaning the real estate industry is “overall healthy.”
Added to the pressure created by debt-ridden Evergrande is growing investor angst about China’s real estate clampdown, which has seen authorities move to curb the property industry in the past year, including tightening home-purchase rules and capping lending from banks while urging powerful property tycoons to pour resources and influence into backing Beijing’s interests.
It isn’t yet clear exactly what actions officials will take in the clampdown on real estate or whether there’s a deadline, but investors are already concerned.
“People may be worried about whether they have to take up extra responsibility to build more subsidized housing,” Philip Tse, head of Hong Kong and China property research at BOCOM International, told Bloomberg. “Foreign investors will be concerned if administrative matters in China will lead to a price cap, more stringent purchasing limits, or some tax-payment proof is required in order to pay for buying a flat.”
China’s real estate shares have fallen 22 percent so far this year.
In the first nine months, property investment rose 8.8 percent from a year earlier, slowing from the 10.9 percent growth seen in January–August.
Eva Fu and Reuters contributed to this report.