The loss of confidence in China’s real estate sector could become a contagion that drags down the Chinese economy, analysts warn.
The comments are made after the developer’s trust China Evergrande Corporation failed to carry out its $300 billion restructuring plan as promised over the weekend.
In a filing with the Hong Kong stock exchange, Evergrande instead said it had applied “preliminary principles” to the restructuring of foreign debt. Evergrande Group (Nanchang), was ordered to pay an unnamed guarantor 7.3 billion yuan ($1.08 billion) for non-compliance with its debt obligations.
“For the government, the priority is to break the negative feedback loop of high leverage and liquidity decline on the part of developers,” said Shuang Ding, Standard Chartered’s chief China economist for China. and North Asia, told CNBC “Street Signs Asia.”
“That leads to a mortgage boycott and very low appetite on the part of homebuyers, and that goes back to developers as low sales affect its liquidity.”
China is facing a mortgage revoltwith homeowners across 22 cities refusing to pay their loans for unfinished housing projects.
“So if this issue is not handled properly, it will have a profound impact on the economy, including government balance sheets, banks balance sheets,” said Ding. goods and households.
Problems in China’s real estate sector threaten an important foundation of a solid economy: market confidence, Ding said.
Land sales, which make up the bulk of provincial government revenue, have fallen 30% over the past year.
The economist said Beijing should highlight problems in the real estate sector and solve them as a whole, rather than with a patchwork approach., for the purpose of avoiding mass defaults.
Dan Wang, chief China economist at Hang Seng Bank, says the government can do this by making sure struggling companies have enough money to finish building homes that are struggling. under construction or completion of a sold project.
China’s politburo last week signaled the country could miss its GDP growth target of 5.5% for the year, while new data shows China’s factory activity unexpectedly drops in July after recovering from Covid-19 lockdown in June.
Sandra Chow, co-head of Asia-Pacific research at CreditSights, said that while Beijing is taking the real estate crisis seriously, the Evergrande crisis is unlikely to be resolved anytime soon and could be. never resolved.
“I think it will take a long time for investors to gain confidence not only in Evergrande but in the entire Chinese real estate sector,” Chow said.
“China’s property market is still struggling, despite all the easing measures, and property values are still falling, especially in the lower tier regions. So it will be difficult. to rebuild trust.”