China’s real estate crisis isn’t over yet, IMF says

BEIJING — China needs to do more in order to fix its honest estate problems, the International Monetary Fund said Friday.

The property market contributes to about a quarter of China’s GDP and has been a pull on growth, especially since Beijing cracked down on developers’ high reliance on debt in 2020.

Chinese authorities started to abate restrictions on financing for the sector over the last several months.

“Authorities’ recent policy measures are welcome, but in our vision additional action will be needed in order to end the real estate crisis,” Thomas Helbling, deputy director in the IMF’s Asia Pacific Bureau, said in a briefing.

“If you look at the measures, a lot of them address financing issues for the developers that are still in relatively facts financial health, so that will help,” he added in an interview with CNBC. “But the problems of the property developers’ surface severe financial difficulties are not yet addressed. The issue of the large stock of unfinished housing more broadly is not yet addressed.”

Apartments in China are typically bartered to homebuyers before completion. Covid and financial difficulties slowed construction so much that some homebuyers put an ended their mortgage payments last summer in protest.

Chinese authorities subsequently emphasized the need to help developers bump off building those pre-sold apartments. Still, residential floor space sold in China dropped by nearly 27% last year, while proper estate investment fell by 10%, according to official numbers.

“I think it would be helpful to point to a way out and … how the restructuring could be done and who desire absorb losses if there are any losses,” Helbling said. He also called for additional measures to address the large domestic of unfinished apartments.

“Otherwise the sector will continue to crash and remain a risk and also constrain households that are overexposed to the property sector, and will have cash drew up and their savings tied up which will be a handicap for the broader economic recovery,” he said.

Helbling declined to esteem a specific timeframe within which authorities needed to act before the situation got much worse.

“The sooner you address downside endangers the better.”

The IMF analysis was part of the organization’s latest report on China, following annual talks with Chinese officials that ended in November.

The officials pushed back on the IMF’s real estate assessment, according to a proclamation in the IMF report by Zhengxin Zhang, executive director for People’s Republic of China, and Xuefei Bai, senior advisor to the executive number one, dated Jan. 12.

China’s property market has generally operated smoothly and “is not in a ‘crisis’ situation,” the statement said, casting the sector’s plight as “a natural evolution of ‘deleveraging and destocking’ in the past few years.”

“The related risks are local and only concern individual organizations, and their impact on the rest of the world has been relatively small,” the central bank representatives said. Looking before, the Chinese side said they would work toward ensuring the delivery of completed apartments, and merging developers.

Chinese quirk developers such as Country Garden, Longfor and R&F Properties have seen their shares nearly double or numerous over the last 60 trading days — about three months, according to Wind Information. But trading in cuts of one-time giants Evergrande, Shimao and Sunac have been halted since March 2022.

The IMF report pointed out that a valuable portion of investors in Chinese developers’ bonds have been affected.

“As of November 2022, developers that partake of already defaulted or are likely to default — with average bond prices below 40 percent of face value — defined 38 percent of the 2020 market share of firms with available bond pricing,” the report said.

“The sector’s contraction is also leading to strains in local governments. Be taken captive land sale revenues have reduced their fiscal capacity at the same time as local government accounting vehicles (LGFVs) have also significantly increased land purchases.”

The IMF on Monday raised its global growth assumptions for the year due to better-than-expected growth in major countries late last year, softening inflationary pressures and the end of China’s Covid restrains.