Moody’s believes that the property market weakness will continue into 2023, and the sector’s contribution to the economy will remain significantly lower over the next few years than it has been in the past decade.
A prolonged fall in home sales and prices could have serious consequences for local government financing vehicles, which would add pressure on local governments that have already seen debts jump by 15% to CNY 35tn (US$5.12tn) last year.
Weaker banks are also exposed to property-related loans, and although this is unlikely to trigger systematic banking problems, the central government may need to provide more support, Moody’s said.
Land sales have accounted for over 40% of the Chinese government’s revenue since 2018. However, only CNY 4.7tn worth of plots were sold last year, down 31% from 2021.
Mainland developers such as China Evergrande Group and China Fortune Land Development have defaulted on loans and abandoned projects since Beijing’s “three red lines” policy was introduced in August 2020 to curb excessive leverage and hot money flows.
The change in government policy and the abandonment of zero-Covid are expected to support the mainland property sector and help it perform better this year than the past two years. However, it will take time for the property market to gradually strengthen, and it is likely the central government will announce more supportive measures in its key policy meetings in March.
Housing sales remain weak, with mainland home prices falling for the 16th consecutive month in December. Contracted sales by the nation’s top 100 developers amounted to CNY 354.3bn, a 32.5% slide from a year earlier.
Moody’s had earlier forecasted that property sales would fall by 10-15% by the end of 2023, while S&P Global Ratings expects new home sales to decline to CNY 12.5tn in 2023.
