China’s deepening property crisis threatens trouble
housing crisis turns three this month, if measured by the introduction of the government’s “three red lines" policy, which sought to limit leverage. Throughout, officials have struggled to manage confidence and expectations. At the start, few observers believed Evergrande could collapse, and that the government might fail to put a stop to the pain.
Until recently, most thought that Country Garden was immune to default. Since late last year officials have sought to calm the market by drawing up an informal list of healthy developers, including Country Garden, that investors could feel comfortable funding and Chinese citizens could trust. Their calculations have changed in recent days.
Country Garden’s issue is not one of over-leverage in the style of Evergrande. Instead, it is a victim of a loss of confidence among regular folk—a sign the government is losing control. After a short rebound following the lifting of covid-19 controls, the property crisis has intensified.
Prices are dropping. Sales among the 100 biggest developers fell by 33% in July compared with a year earlier. Country Garden’s tumbled by 60%.
The firm’s decline is forcing market-watchers to confront their deepest fears about the property sector. One is that property supply chains collapse. Over the past three years suppliers of materials, along with the engineering and construction firms that build homes, have often not been paid on time by developers.
But so far this backbone of the sector has withstood the pressure. That could change as developers grow shorter on funds. The decline in payments to suppliers is already noticeable.
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