China real estate: has the slide only just begun?
Looks like China’s real estate sector is going from bad to worse.
BNP Paribas says in a March 18 report that hopes for a speedy stabilization in the Chinese economy’s key growth engine are proving a pie in the sky for naive investors. Recent data show property transactions fell at an accelerating rate in the first two months of the year, suggesting that recent property easing measures have had little, or no, discernible impact.
Even worse, housing starts are also sliding but at roughly the same pace as sales, implying that much deeper cuts to supply will ultimately be needed to restore long-run equilibrium. Adding more grist to the worry mill is the fact that the pipeline of real estate projects under construction continues to rise relative to sales.
Supply/demand imbalances in China property sector are likely to get way worse before they improve. Unsurprisingly, house prices are also continuing to slide at a c.5% annualized pace with no evidence of any genuine respite. The clear risk is that pace of price declines accelerates. PNB says the cocktail of falling transactions and prices is predictably crushing the value of land sales, which are now down 30% y/y and tightening the vice on local government finances.
But going forward, there may be some glimmers of hope. Supportive measures from the government are likely to target the sector and up credit availability.
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