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Chinese developers are in "survival mode" and are cutting investments in real estate

Image: Reuters Berita 24 English - In July, Chinese developers who were in "survival mode" cut property investments sharply, and ...

Image: Reuters

Berita 24 English - In July, Chinese developers who were in "survival mode" cut property investments sharply, and new construction starts fell by the most in almost a decade. This shows that the liquidity-strapped sector isn't about to turn the corner any time soon.

Since the summer of 2020, China's property market, which makes up about a quarter of the economy, has been stuck in a capital crisis. This has caused some developers who are short on cash to stop paying their debts and struggle to finish projects. Developers have been less likely to put money into new projects because buyers are wary.

According to Reuters calculations based on data from the National Bureau of Statistics (NBS) on Monday, property investment fell 12.3% year-over-year in July, which was the biggest drop since 2022. New construction starts by floor area also fell 45.4%, which was the biggest drop since January-February 2013.

"Everyone is in survival mode except for state-owned enterprises," a high-ranking official at a Shenzhen-based developer said on the condition of anonymity.

"We're all waiting for the economy to get better, and we're all trying to make sales go faster, cut costs, and buy less land. But in the end, sales depend on the people who buy the product."

Since 2020, it has been hard for cash-strapped real estate companies to get new loans. This is because regulators put in place strict rules for new borrowing by developers because they were worried about their growing debt.

Reuters used NBS data to figure out that loans from domestic banks to developers dropped by 36.8% in July, while capital raised from outside the country fell by 200%.

The central bank said on Friday that household loans, which include mortgages, dropped from 848.2 billion yuan in June to 121.7 billion yuan ($18 billion) in July.

Based on NBS data and calculations by Reuters, new home prices fell 0.9% year-over-year in July, which was the fastest rate since September 2015 and added to a 0.5% drop in June. This reflected how buyers felt about the market.

As developers wait, they hope that regulators will loosen their grip on the sector after the Communist Party's once-every-five-years congress in the fall, where President Xi Jinping is expected to win a third term as leader, which would be a first.

"The main supply-side policies haven't been changed yet, but they probably will be after the 20th CPC national congress," a developer said without giving his name.

From January to July, property investment fell 6.4% from the same time last year. This was the biggest drop since March 2020.

New building starts fell by 36.1%, which was worse than the 34.4% drop in the first half.

($1 = 6.7595 Chinese yuan)

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