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Kallanish Kallanish

Knowledge matters Knowledge matters

December, 7th 2021

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OCT 18
14:37

Chinese real estate sparks demand fears

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China’s real estate sector has been under pressure from financial controls, mounting debts and uncertainty over economic growth. September data has weakened as expected and is likely to get worse, reducing the outlook for steel in the coming years, Kallanish notes.

Over January-September completed investment in Chinese real estate was up 8.8% at CNY 11.257 trillion ($1.751 trillion), but in September alone investment fell 3.5% year-on-year to CNY 1.451 trillion, according to the National Bureau of Statistics (NBS). That was the first y-o-y decline since March 2020.

Sales are falling much faster. Over nine months they are still up 11.3% at 1.303 billion square metres, but in September they were down 13.2% at 161.39sqm. Average prices meanwhile were down 3% y-o-y at CNY 9,758/sqm, the lowest since April 2020.

Measures of activity were similarly slowing down or falling. New starts over nine months were down 4.5% at 1.529 billion sqm, and in September alone were down 13.5% at 174.42 million sqm. New starts have been down y-o-y for each of the last six months.

Completions meanwhile had previously been increasing rapidly, but slowed suddenly in September. Over nine months completions grew 23.4% y-o-y to 510.13m sqm, but in September growth slowed to just 1% to 42.74m sqm.

A number of real estate developers are close to defaulting on bonds, with Evergrande coming up to a deadline to reach an agreement on an overseas bond payment at the end of this week. It remains unclear what action central government will take, but consensus is that China will not step in to pay overseas investors, preferring instead to protect domestic home buyers. Buyers meanwhile are reluctant to invest with inflation looming, an economic slowdown approaching, and China aiming to levy a property tax. 

The impact of these developments on the wider economy could be far-reaching. The impact on steel demand in the coming months, 2022 and beyond is expected to be negative.

Tomas Gutierrez UK