Analysts have warned that a lack of confidence in China’s property sector could lead to a contagion that would drag down the Chinese economy further.
The comments come after troubled developer China Evergrande Group failed to meet a $300 billion restructuring plan promised over the weekend.
In a filing with the Hong Kong Stock Exchange, Evergrande instead said it had “initial principles” for restructuring its offshore debt. It also said that one of its subsidiaries, Evergrande Group (Nanchang), had been ordered to make an anonymous payment. 7.3 billion yuan ($1.08 billion) guarantor for failing to meet its debt obligations.
“For the government, the priority is to break the negative feedback loop that has high leverage ratios and lack of liquidity on the part of developers,” Shuang Ding, chief economist at Standard Chartered for Greater China and North Asia, told CNBC’s “Street.” Science Asia.”
“This leads to a mortgage exclusion and much less appetite on the part of the homebuyer, and it goes back to the developer as the short sale affects its liquidity.”
China is facing a mortgage repayment revolt, with homeowners in 22 cities refusing to pay their loans on unfinished housing projects.
“So if this problem is not handled properly, it will have a profound impact on the economy, including government balance sheets, banks’ balance sheets and households,” Ding said.
Ding said problems in China’s property sector threaten an important foundation of a strong economy: market confidence.
Land sales, which form a major part of the provincial government’s revenue, have fallen 30% in the past year.
The economist said Beijing should address issues in the property sector and tackle them holistically rather than from a one-piece approach., With the aim of avoiding massive bankruptcy.
Dan Wang, chief China economist at Hang Seng Bank, said the government could do this by ensuring that companies in crisis have enough money to complete a half-baked house or a sold-out project.
The Chinese Politburo indicated last week that the country could miss its 5.5% GDP growth target for the year, while new data showed China’s factories in July rebounded after bouncing back from the Covid-19 lockdown in June. Activity was unexpectedly contracted.
While Beijing is taking the property sector crisis seriously, it is unlikely that the Evergrande crisis will be resolved anytime soon, said Sandra Chow, co-head of Asia-Pacific research at CreditSights. .
“I think it is going to take a long time for investors to gain confidence not only in Evergrande, but in the property sector across China,” Chou said.
“China’s asset market is in trouble, however, despite all the easing measures and asset values are still falling, especially in low-lying areas. So it will be very difficult to rebuild trust.”