China Surge Slows

New restrictions on home loans designed to reduce exposure to China’s real estate market are yet to show signs of impact. But analysts predict the inevitable result will be a slowdown in price growth after a surge post-lockdown

- Steve Finch

The Year of the Rat in 2020 started with new house sales at a standstill as the pandemic bit hard. But by the start of the Year of the Ox in February, China’s residential market had recorded something of a property miracle.

Since lockdowns ended in cities across China in April last year, sales volumes of new homes had climbed nearly 11 per cent and prices 7.5 per cent compared to the previous year, according to Fitch Ratings.

On par with median rates over the past decade, home sales in China did record a minor blip. But less than a year later, the industry’s vital signs suggest the sector has developed immunity to the pandemic.

Closer inspection, though, reveals a worrying diagnosis for the central government in Beijing. In June, China’s second-largest developer by sales, Hong Kong-listed China Evergrande, reported staggering outstanding loan repayments of US$124bn—equivalent to the entire sovereign debt of Denmark.

The beleaguered firm made early bond repayments in January, easing investor and policymaker concerns after institutional state investors including SenseTime Group rallied to inject capital worth tens of billions of renminbi.

Still, the China Evergrande debacle appeared to spook Beijing, coming as it did among a host of other red flags linked to real estate. Also, in June 2020, China recorded its highest-ever household leverage ratio amid a surge in new mortgages which placed the average Chinese homeowner under a record burden of mortgage repayments.