China Saying Goodbye to its Signature Explosive Expansions

The tide in China’s devastating real estate market may be shifting. Bond trading volumes and prices have risen in recent weeks, bolstered in part by the government’s vow to promote the industry and some relaxation of restrictions.

Analysts, on the other hand, believe China’s high-growth property market may be a thing of the past, with the sector destined to be “transformed permanently” because of the recent shakeup. China’s policy crackdown on its residential property market has “bottomed,” according to S&P Global Ratings, but it will take many quarters for markets to experience the impacts of the regulatory loosening.

According to recent reports, certain towns and banks are eager to assist real estate again following a drop in home sales in recent months. According to Zou Lan, head of the People’s Bank of China’s financial markets department, banks in more than 100 Chinese cities have decreased mortgage rates by an average of 20 to 60 basis points since March owing to diminishing market demand. He also mentioned how Covid has impacted some people’s income and capacity to make timely mortgage payments.

Real Estate and Policy Change

It’s difficult to believe that the crisis will be handled this year… Developers will be unable to repay their loans, according to Natixis, an Asia-Pacific Economist. Gary Ng, the Asia-Pacific economist at Natixis, said, “The government’s attitude [is] attempting to avoid the contagion, preventing the spillover from the real estate sector spillover to the real economy.”

According to Moody, changes in China’s real estate business have a substantial impact on the economy because property and associated industries account for about a quarter of GDP. The current round of Covid limitations has put even more strain on an already sluggish economy.

After the government implemented the so-called “three red lines” policy in August 2020, intended at reigning in developers after years of expansion driven by excessive debt, the difficulties of real estate developers in China came to a head. The policy establishes a debt ceiling in accordance with a company’s cash flows, assets, and capital.