No choice for China but to reform battered property sector
With growth above trend and reasonably low household leverage, now is as good a time as any; to do otherwise would risk a disorderly debt restructuring
Add BT as a preferred sourceTHAT China's property sector is facing its worst set of challenges, perhaps in decades, is common knowledge. One year on from the implementation of the government's "three red lines" debt limitation policy, two-thirds of the country's top 59 real estate developers were still in breach of at least one of the 3 leverage ratios as of June 2021, according to media reports.
Evidently - and paradoxically - it is difficult for developers to deleverage simultaneously, as sellers saturate the market, buyers hoard cash, and transactions dry up as the government seeks to prevent price declines (see chart).
Thus, real estate developers in China have been filing for bankruptcy at an average rate of approximately 1 per day since the start of 2021.
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