The property market – the liquidity-challenged sector – will not turn the corner anytime soon. Chinese developers are in “survival mode” as they sharply cut property investments in July. In the meantime, new construction starts suffered their biggest fall in nearly a decade.

The market

The property market makes up about one-quarter of China’s economy. Since the summer of 2020, it has been trapped in a capital crisis as regulators tightened credit conditions on new borrowing by developers because of their spiraling debt.

According to Reuters, this led some cash-strapped developers to default on their debts and now they struggle to complete unfinished projects.

The report pointed out that from January to July, property investment fell 6.4% from a year earlier. This is the most significant drop since March 2020.

New construction starts tumbled 36.1%, up from a 34.4% drop in the first half.

Developers and buyers

A senior official at a Shenzhen-based developer told Reuters: “Everyone except state-owned enterprises is in survival mode.”

He added: “We’re all waiting for a recovery and trying to speed up sales and reduce costs and buy less land. But at the end of the day, sales depend on the end users.”

He concluded, “It’s really hard to raise funds once your credibility is damaged.”

In July loans by domestic banks to developers fell 36.8%, while capital raised from overseas plunged 200%. 

China’s central bank announced on Friday, August 12, that household loans, including mortgages, dropped to a mere 121.7 billion yuan, or about $18 billion in July from a massive 848.2 billion, or just under $125 billion just one month before. 

Reflecting poor buyer sentiment, new home prices fell almost 1% on year in July. This is the fastest pace since September 2015, and extends the decline from June. 

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