Author: Chantelle Lee
Assessments conducted by real estate experts at Nomura Holdings concluded that the property market in China has been facing difficulties, as home sales have been down by 40% for the largest developers and it is estimated that 50% of Chinese developers will go bust in the next few months.
In 2020, the Chinese government has implemented property curbs with the effect of triggering uncertainty for many market participants. Experts at Nomura believe that a modest amount of property curbs will be eased, while keeping in place those in big cities. On the other hand, economists believe that the trickle of positive news from local governments trying to promote the easing of measures (i.e. banks lowering mortgage rates) will have little impact.
Moving forward, Beijing’s determination to curb the property sector may be China’s “Volcker Moment“. The “Volcker Moment” refers to an anti-inflation initiative implemented by having a change in policy. China’s “Volcker Moment” could result in a significant slowdown in economic growth. Unlike in previous economic downturns, Chinese authorities intend to tighten the policy in the property sector and control prices this time around in order to reduce wealth inequality and increase the falling birthrate. Policymakers will be prepared to sacrifice short-term economic growth in order to tame house prices and divert financial resources away from the property sector, which accounts for a quarter of China’s GDP.
Economists concluded that developers should brace themselves for a significant slowdown in growth over the next term, as we foresee an increase in developer defaults and home foreclosures. Furthermore, authorities appear determined to expand the property tax scheme from trials in Shanghai and Chongqing to the entire country. This will help to address wealth inequality and help replace local governments’ income from land sales, which will be reduced as a result of the ongoing curbs.