S&P predicts that Communist China’s property sales will plummet 30%

According to a CNBC report on July 27th, S&P’s global rating data shows that Communist China’s property sales will be twice as high as the forecast decline and will fall by 30% in this year. Many homebuyers have suspended the mortgage payments.

Esther Liu, director of S&P Global Ratings, said on Wednesday that Communist China’s property sales will plummet more this year compared with 20% during the 2008 financial crisis. Homebuyers who refuse to pay mortgages for hundreds of unfinished projects have increased rapidly since June, while debt-dependent companies have difficulty in obtaining financing. What’s worse, the decline in sales has put developers in financial trouble. Homebuyers who can’t get the apartments they paid for may cause social unrest.

S&P’s report on Tuesday estimated that suspended mortgage payments amounted to about 974 billion yuan ($144.04 billion), accounting for 2.5% of the total mortgages of the Communist China, or 0.5% of total loans. Nonetheless, analysts generally do not expect a systemic financial crisis.

The report mentioned that the government has quickly responded and launched relief funds to prevent the financial crisis, encouraging banks to support developers to complete apartment construction, while vigorously promoting that “houses are for living in, not speculation.”

Esther Liu holds the view that the scale of the government’s bailout is not enough to save the current property market. Due to the local government’s policy of supporting house prices, it will not fall sharply. Housing prices are expected to fall by 6% to 7% this year and then stabilize.

About 25% of the GDP of Communist China is affected by real estate, and part of that 25% are at risk levels. Since the real estate industry in the country is interrelated with local governments and land policies, it is difficult to solve the problems in a short time.

Goldman Sachs said in a report on Tuesday that “the continued stresses in the property sector coupled with the uncertainties related to COVID measures suggest a murkier outlook for China”, but there is no real systemic concern.