No matter how the state-controlled Chinese media obfuscates and spins it, the country’s huge real estate sector’s troubles have worsened in the past couple of months.
That was underlined by the March economic data dump on Monday, especially the latest figures on real estate investment and sales – in short, they were terrible.
And the current Covid epidemic only played a small part in the poor figures for March which saw larger falls in sales, new starts and funds raised as well as a sharp slide in new investment compared to January and February.
With Covid having a much bigger impact this month, analysts say the data for April and the June quarter will be even worse and will add more financial pain to an already badly damaged sector that still accounts for around 25% of investment through the economy.
With activities in cities large and small – led by Shanghai, closed down or restricted – it’s the last thing the Chinese property sector wants to see in the wake of multiple defaults by property companies of all sizes, led by the giant Evergrande.
The continuing weak level of investment and sales indicates that future demand for key products such as cement, steel, wood, bricks, tiles and aluminium and copper will weaken over the rest of 2022.
And for Australian suppliers of these key commodities, the outlook for property and construction is weak and not even rumoured spending stimulus by the government will provide an immediate impact.
In fact crude steel and cement manufacturing output in March contracted by 6.4% yoy and 5.6% yoy respectively.
Overall investment in real estate contracted by 2.4% year on year (yoy) in March (having increased by around 3.7% yoy in the first two months).
The National Australia Bank said in a commentary on Tuesday; “Chinese authorities have publicly stated that they are seeking to stabilise real estate conditions, but face significant challenges – given the importance of the sector to the overall economy, as well as mortgage stress among highly leveraged households and wealth effects related to property price changes.”
Data from the National Bureau of Statistics showed a rise of 0.7% in March in investment in residential properties but that was down sharply from a 3.7% gain in January and February.
The current Covid lockdowns will see that figure tip into negative territory, joining sales, new starts and new funds.
Property sales by floor area declined 13.8% year-on-year in the first quarter of the year, compared with a 9.6% fall seen in the first two months, according to data from the National Bureau of Statistics (NBS).
New construction starts measured by floor area fell 17.5% in January-March from a year earlier, after a 12.2% fall in the first two months.
Funds raised by China’s property developers fell 19.6% year-on-year in the first three months, after a 17.7% drop in January-February.
After some signs of improvement in January, recent COVID-19 outbreaks and tough lockdowns have put fresh pressure on the sector, Chinese analysts say.
The value of commercial housing sales fell 22.7%.
All this helps explain the 6% fall in China’s crude steel output to 88.3 million tonnes in March from more than 94 million tonnes a year earlier.
But it was higher than the monthly average for January and February which were combined into a total of 158 million tonnes (which was down 10% from the start of 2021).