Mark Williams, chief Asian economist at Capital Economics, estimates there are still about 30 million unsold properties in China, which could house 80 million people. This is almost the entire population of Germany.
Here’s a look at some of those projects and how the problem arose.
Real estate and related sectors are an important part of the Chinese economy, accounting for up to 30 percent of GDP. According to Williams, the proportion of economic output related to construction and related activities is “very high compared to other major economies”.
For decades, it has helped the country maintain rapid economic growth.
But for years, critics have questioned whether this engine of growth created a ticking time bomb for the world’s second-largest economy. This is, in part, due to the large debt that many developers took on to fund their projects.
As China’s most indebted developer, Evergrande has become the poster child for unsustainable growth, with liabilities of more than $300 billion.
In a recent report, Zhu wrote that 12 Chinese real estate companies defaulted on bond payments totaling 19.2 billion yuan (about $3 billion) during the first half of the year.
“This accounted for about 20 percent of total corporate bond defaults in the first six months of the year, the highest among all sectors” in mainland China, he added.
The pandemic halted the activity temporarily. But construction rebounded when China reopened and the country’s real estate market experienced a brief recovery.
However, since then, the market has exploded again. And there are no signs of immediate relief.
In recent months, “Affordability Measures, Housing [construction] Zhu noted that sales and sales “have fallen significantly. In August, property sales, as measured by area sold, fell 18 percent compared to the same period last year.”
In the same month, new home prices “increased 3.5 percent from a year ago, the smallest growth since the real estate market recovered after the pandemic collapsed in June 2020,” he said. Write Zhu.
“Demand for residential property in China is entering a period of continued decline,” Williams wrote in a research note. He called this “the root of Evergrande’s problems – and the problems of other developers who are more leveraged.” .
Then there is the problem of unfinished projects even if there is demand. According to economists, most new properties in China (about 90%) are sold before completion, meaning any setback for homebuilders could directly affect buyers.
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