Chinese developers had annual drop in property sales last year

Hong Kong

THE value of new homes sold by China's largest real estate companies fell annually for the first time since at least 2016 and declined further in December, suggesting a weak property sector continues to be a drag on the world's second-largest economy.

The hundred largest developers in China sold homes worth 11.1 trillion yuan (S$2.4 trillion) in 2021, down 3.5 per cent on 2020, according to China Real Estate Information Corp.

Property developers depend on pre-sales of unbuilt apartments to fund construction of real estate projects. That investment and demand for construction materials like steel and cement is estimated to account for about 20 per cent of China's gross domestic product.

December's sales fell 35 per cent compared to the same month last year, after declining 38 per cent in November, even after Beijing loosened financing to the sector in an attempt to stabilise the economy.

Falling income from contracted sales also makes it harder for Chinese developers to repay bondholders, especially as Beijing is encouraging companies to prioritise completing existing projects and paying workers over debt repayments. Chinese property developers have been the main issuers of dollar-denominated debt.

Beijing began to squeeze finance to real estate developers at the beginning of 2021 by ordering real estate companies to limit their borrowing and asking banks to slow the pace of mortgage lending as policymakers tried to reduce the risks of a bubble in the sector, following a real estate-led economic recovery from the pandemic.

Several prominent economists expect housing sales will continue to fall in 2022, with UBS Group forecasting a decline of 10 per cent for this year. BLOOMBERG