Home sales slumping due to tighter regulations and concerns over potential Evergrande default

China might not have its customary "gold and silver months" for home sales this year, which are normally in September and October, experts predicted, as recent data showed a continued cooling trend triggered by a mixture of factors, including tightened government regulations and concerns about Evergrande's potential default. During the recent Mid-Autumn Festival, 26 major Chinese cities, including Beijing, saw housing turnover slump compared with the same period last year, according to house information website julive.com. The data again attested to a cooling trend in China's property market that started around April. According to data from the National Bureau of Statistics (NBS), new commercial housing prices in first-tier cities rose 0.3% in August compared with July. The NBS data also showed that of China's 70 major cities, 20 saw new commercial house prices decrease month-on-month in August, compared with only 16 in the previous month.

Xue Jianxiong, President of a Shanghai-based asset management firm, told the Global Times that China's housing turnover began to edge down around April as a result of tightening government regulations and a coronavirus-triggered economic slowdown. “Some cities, like Shanghai, have seen house trading volume edge down, but prices are stable as those cities are still in the primary stage of market adjustment. But generally, the housing market is in a period of correction, both in terms of prices and trading volume,” Xue said. Experts mainly attributed the situation to the country's tightening policies, including a reported government order that developers' land purchases can't exceed 40% of their yearly sales revenues, as well as limits on banks' loans to developers and individuals. This year, central and local governments rolled out as many as 400 measures to regulate the housing market, setting a record.

Evergrande is under immense pressure after it faced difficulties in repaying liabilities that exceed USD300 billion after years of borrowing. Evergrande started to repay the interest on some of its bonds starting on September 23 but still faces more bond repayments in the coming weeks. According to the Wall Street Journal, Chinese authorities are instructing local governments to prepare for the potential downfall of the Evergrande Group, signaling a reluctance to bail out the property developer while bracing for any fallout from the company’s difficulties. Local governments have been ordered to assemble groups of accountants and legal experts to examine the finances around Evergrande’s operations in their respective regions, and talk to local state-owned and private property developers to prepare to take over local real-estate projects, the officials told the Wall Street Journal. But local-level government agencies and state-owned enterprises have been instructed to step in only at the last minute should Evergrande fail to manage its affairs in an orderly fashion.

As of the end of June, Evergrande was involved in 778 projects located in 233 cities across the country, according to its first-half financial results. In the first half of 2021, it launched 65 new projects for sale in cities including Beijing, Guangzhou and Shenzhen. As a result of property tightening measures, the country's residential property sales fell 20% in August year-on-year. Considering that the fall was mostly driven by the high base last August, Fitch Ratings said in a research report that the decline was not “as alarming as the headline numbers suggest.” August 2021 sales totaled CNY1.1 trillion, the second-best August sales on record, according to the rating agency, expecting full-year home sales to “remain largely flat from 2020 even if the decrease in monthly sales persists for the rest of this year.”