Real estate stocks in China are approaching their lowest level in 12 years

Chinese real estate stocks are close to losing all the gains they made during the recovery of the country’s reopening after last year’s Corona pandemic as problems in the heavily indebted sector escalate.

The “Bloomberg Intelligence” index of real estate stocks traded on the mainland and in Hong Kong is less than 3% away from falling below its lows at the end of October, which was the lowest since 2011. The barometer had risen by 88% in less than 6 weeks ago. Then China’s move to dismantle covid controls and a series of measures supporting the real estate sector raised hopes for recovery.

This optimism has now been replaced by deeper fears, as mounting debt problems have pushed even the largest developers to the brink of default. A set of measures taken by the authorities to promote sales provided only fleeting support.

While the incessant sales turned former Real Estate stars, such as the company “Country Garden”, and”snack China”, into cheap shares.
The real estate industry in China is stuck in a vicious circle, as failed developers make households more reluctant to buy homes, which again hinders the cash flow of companies. Prices for new housing in China fell again in July, while Bloomberg reported that the figures are likely to be much worse than official data indicate.

With more cities reporting consecutive declines in new home prices for July, “it seems unlikely that the country’s housing sentiment will hit bottom soon, “Bloomberg analysts Christy Hong and Lisa Chu wrote in a note dated August 24. “Buyers may remain on the sidelines until the pricing trend shifts, setting the tone for a negative feedback loop,”he said.

Since the real estate sector is the main engine of the Chinese economy, its weakening raises concerns about further outflows from the country’s assets.
The developer stock index erased previous gains to fall again on Thursday. The CSI 300 index of mainland stocks has lost more than 7% this month, and is among the worst performing indices in the world.