Once an economic driver, China real estate market has finally hit its 18-year bottom. “Presales have plunged as would-be buyers steer clear of purchasing properties with developers, many of whom are cash-strapped and consequently trying to widely halt construction,” Nikkei Asia reports.
Preselling properties has been a major way for developers to get their money invested faster. This allows them to get cash for future projects. However, the practice has highly declined. Presales of homes have fallen by about 30 percent. Moreover, new-home sales for January through July this year decreased by 21 percent, according to the National Bureau of Statistics.
This has plunged China into a severe housing recession. Many property developers suffered in this financial downturn and, since 2022, have halted construction on presold homes. As such, homebuyers will not get to move into their new home anytime soon. The situation has sparked protests and mortgage strikes among frustrated buyers.
The CCP fears that these delays contribute to growing dissatisfaction and that more criticism could arise from it. During the third plenum last July, the party introduced reforms over presales issues and incentivized the sale of completed properties in an attempt to reduce discontent and restore confidence in the market.
The governmental responses have established measures based on the CCP’s policy. These measures involve giving tax breaks to developers, and the banks are raising their credit lines for developers.
If developers sell more properties after completion, then they will take even more time to recover the investments made. Moreover, according to a calculated estimation by Nikkei Asia, construction costs for homeowners maybe 20 to 30 percent higher compared with pre-sales.
Although real estate sales may increase, the downward pressure on prices remains heavy. It remains open to question how long developers can compensate for crucial funds and keep money flow stabilized in the prolonged depression of the market. “The turnover of funds will slow, and it will become difficult for real estate firms to manage their businesses as aggressively as before,” said Yusuke Miura of the NLI Research Institute, a senior researcher.
The new-home sales data provides little cause for hope of a comeback. Prices in 66 of the 70 major cities continued to decline in July, according to the National Bureau of Statistics. Property prices have declined in more than half of those cities for 14 continuous months. That trend, continuing since June 2023, further complicates developers’ seeking out funding for projects.
Presales and construction delays are major setbacks for China real estate market. As prices keep falling, developers’ confidence continues to erode. The sector stands at a crossroads. Recent government reforms might offer relief, but their effectiveness will hinge on the quality of their implementation.
ANI
