
Amid the economic crisis in China, an estimated 233 home developers filed for bankruptcy last year, as reported by Taiwan News and citing the China Real Estate Association. The highest number of bankruptcy applications came from the Zhejiang province, with 36 cases, constituting 15.45% of the nation’s total. Following Zhejiang, Hunan and Guangdong provinces ranked second and third, respectively.
Declining Trend in Bankruptcies
The report highlighted that the number of bankruptcies in 2023 was the lowest since 2020. In 2020, the first year of the Covid-19 pandemic, 408 home developers filed for bankruptcy, followed by 343 in 2021 and 308 in 2022.
Impact on Third- and Fourth-Tier Cities
The economic downturn disproportionately affected home developers in third- and fourth-tier cities. Despite this, the overall impact of bankruptcies is expected to be limited, according to the report. CRIC Securities’ research department noted that challenges persist in China’s housing market due to dwindling home sales, low consumer confidence, and inventory overhang, suggesting a prolonged period of sluggishness.
Challenges in China’s Housing Market: Visible Slowdown in Construction
A US-based news daily reported that construction sites across China appeared less busy, and the construction of apartment towers had slowed down due to falling apartment prices. Goldman Sachs calculated a decline in prices of new apartments in 70 large and medium-sized cities across China. Prices fell at a seasonally adjusted annual rate of 2.9% in August, compared to 2.6% in July.
Understated Price Declines
Data indicated that prices of new apartments might understate the speed and extent of the decline. Local governments pressured developers not to cut prices, and the overall market struggled despite these challenges.
Existing Homes and Debt Repayment Issues
Prices of existing homes in 100 cities across China fell an average of 14% by early August from their peak two years earlier, according to the Beike Research Institute. Rents also experienced a five percent decline. Additionally, China’s banking sector faces challenges with debt repayment from property developers, contributing to the economic strain.
Debt Repayment Challenges
China’s banking sector is grappling with the repayment of debt from defaulters, particularly in loans made to property developers. The involvement of loans to local governments and their financial affiliates poses a significant barrier to the immediate repayment of loans from defaulters.
Central Bank’s Response
To address the economic challenges, the People’s Bank of China announced measures to free banks to set aside smaller reserves and extend more credit. This move is seen as intended to accommodate a large batch of bonds that local and provincial governments will issue to fund infrastructure projects, as reported by The New York Times.