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"Growing Calls for Bold Policy Measures as China's Property Troubles Worsen"

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China's Property Troubles Worsen, Urgent Need for Bolder Policy Measures

Accelerating Real Estate Troubles

China's real estate sector is facing escalating troubles as prospective home buyers hold back on purchases, leading to weak sales. This situation highlights the urgent need for policymakers to step up support for the industry. New home sales for the top 100 developers have dropped significantly, posing cash flow issues for developers.

Country Garden's Impact and Industry Uncertainty

The troubles faced by Country Garden, one of China's major developers, have further worsened the real estate market. The looming default of Country Garden, along with the uncertainty of government support, is adding to the broader unease in the Chinese housing market. The sector has been reeling since 2020 when Beijing cracked down on debt levels of property developers.

Debt Troubles and Default Risks

China's "three red lines" policy, which limits developers' debt in relation to cash flow, assets, and capital, aims to address the debt issue. However, defaults have still occurred, with Evergrande being the first high-profile case in late 2021. A default by Country Garden could significantly add to the already substantial volume of defaults in the Chinese property sector.

Challenges in Lower-Tier Cities

Country Garden's problems are largely attributed to its exposure to lower-tier cities, where housing supply exceeds demand. Sales performance in these cities has been disastrous, with a significant drop in sales. Weakness in lower-tier cities started in May, while higher-tier cities experienced sales decline in subsequent months.

State-Owned Developers' Advantage

State-owned developers have seen growth in contracted sales, while non-state developers have experienced sales decline. This positions state-owned developers better for future growth, as robust home sales boost their cash flow and ability to purchase land. However, the dominance of state-owned developers may complicate the forecasting of actual demand in the industry.

Policy Clarity and Housing Demand

Stabilizing demand and sales in higher-tier cities through timely policy measures is crucial. This could eventually lead to stability in lower-tier cities, although it may take time. The underlying housing demand in first-tier cities remains resilient and untapped, presenting potential opportunities once there is greater policy clarity.

In conclusion, China's real estate troubles are intensifying, demanding bolder policy measures to address the challenges faced by developers. The uncertainties surrounding Country Garden's default and the dominance of state-owned developers add to the complexity of the situation. Timely policy interventions and clarity are vital to stabilize the market and unleash the untapped housing demand in the long run.

Conclusion: Implications for New Businesses

The escalating troubles in China's real estate sector present a complex landscape for new businesses, particularly those considering entering or already operating in the property market.

Market Uncertainty and Business Risk

The uncertainty surrounding property sales, developer defaults, and government policy responses heightens the risk for new businesses. The potential for significant market fluctuations necessitates careful risk management and strategic planning.

Opportunities Amid Challenges

Despite the challenges, opportunities may emerge. The resilience of housing demand in first-tier cities suggests potential areas for growth, especially if policy clarity is achieved.

State-Owned Developers' Dominance

The dominance of state-owned developers could impact competition dynamics. New businesses may need to devise innovative strategies to compete effectively or explore partnerships with these dominant players.

Policy Measures and Market Stabilization

The call for bolder policy measures to address the sector's troubles could lead to significant market changes. New businesses must stay abreast of these developments and be prepared to adapt swiftly.

In conclusion, while China's property troubles present significant challenges, they also underscore the need for new businesses to be agile, strategic, and responsive to market changes. By doing so, they can navigate the complexities and capitalize on potential opportunities in the evolving landscape.

Story First Published at: https://www.cnbc.com/2023/08/18/chinas-property-troubles-worsen-ramping-calls-for-bolder-policy-help.html
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