Nikkei Asia reported on August 29 that China’s property market crisis is deepening as developers recently posted steep losses, contrasting with last year’s first-half earnings.

According to the report, Ronshine China Holdings, a Hong Kong-listed midsize property firm, forecasted on August 23 that its net loss for the first half of the year would likely range between $627 million and $700 million (4.3 billion to 4.8 billion yuan), widening from its $99 million profit a year earlier.

Ou Zonghong , chairman of the company, explained that the main factors were due to “the tough business environment in the real estate industry and the continued impact of the COVID-19 pandemic.”

Ou said that a sharp decline in sales and construction delays have impacted greatly on the company. As a result, contracted sales in the first seven months plunged by 53% to $6.7 billion.

Ronshine is not alone. Central China Real Estate, a midsize developer from Henan, is expecting a net loss of up to $900 million (6 billion yuan).

Zhenro Properties Group, another Hong Kong listed developer, said its loss in the first half of 2022 could reach $434 million (3 billion yuan), reversing a net profit of $168 million from a year ago.

The outlet noted that other Chinese property firms merely avoided net losses. 

Among them, Yuzhou Group Holdings predicted its net loss in the first half  of the year would be between $8 million to $9.4 million (55 million yuan to 65 million yuan), a decrease of 92% to 94% over the same period last year.

Meanwhile, Country Garden Holdings and Times China Holdings said that their projected net profits could shed 99% from a year ago.

Kelly Chen, senior analyst at Moody’s Investors Service, told the outlet, “We believe that these developers’ revenue growth and profit margins have declined in the first half and will continue in the rest of 2022, in view of the tough operating environment and difficult funding conditions.”

Chen added that the margin pressure stems from the Chinese developers’ large discounts to their customers. She believes this is one of the few solutions left for them as “weak investor sentiment has constrained their access to funding, especially in offshore bond markets, since the beginning of the year.”

Moreover, Chen also said that Moody would reassess the credit standings for these property firms if their official first-half year profits are even worse than expected.

According to Nikkei Asia, while the Chinese Communist Party takes action to support the property sector, the banks’ loan books have also started showing signs of potential risks to the broader financial system’s health.

Several Hong Kong based lenders with exposure to Chinese customers have recently reported their first half year’s loan performance to the property sector.

HSBC announced the impairment charges of $1.1 billion, contrasting with a $700 million positive reversal year on year. 

Total credit impairment charges for Standard Chartered reached $267 million, most of it coming from China’s commercial property sector.

The outlet noted that the impact hit some banks in China as well. 

Postal Savings Bank of China, one of the biggest banks in terms of assets, said its nonperforming loans (NPL) to the property sector reached nearly $260 million (1.79 billion yuan) at the end of June, an increase of 82 times from last December. The figure is even more noteworthy as the overall NPL of the bank declined by 19%.

China Merchants Bank’s NPL to property sector jumped by twofold to $1.62 billion (11.2 billion yuan) from a year ago, increasing its total bad loans by 11%. 

The bank also reported $3.3 billion of credit losses for loans in the first half of 2022, up 58% over the same period last year.

Regarding China’s property crisis, Lianhe Zaobao recently reported that the decades-old common area policy implemented in Chinese apartments once again caused public outrage.

According to the report, this came after Legal Daily, a Chinese state-backed media outlet, published a piece reflecting on how this system has caused difficulties and frustration among Chinese homeowners.

In addition, China’s current regulation does not have a clear definition for common areas. Homebuyers cannot calculate the areas by themselves due to their complexity. Therefore, Chinese developers can exploit these loopholes to increase home prices and make customers pay more for smaller houses.

As reported by the Legal Daily, a poll on Weibo made by Sina-Singapore Jingwei on August 16 shows that 96% of Chinese netizens want to cancel this policy.

In early March, Hong Yang , a member of the National Committee of the Chinese People’s Political Consultative Conference, proposed to cancel the common area policy at the National People’s Congress of China.
Ban Yue Tan journal of Chinese state media outlet Xinhua News also issued a February document supporting the policy’s cancellation.

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