China’s Housing Slump Far Worse Than Reported; Half of State-Owned Builders Warn of “Widespread” Losses
Earlier today, Goldman’s head of hedge fund sales Tony Pasquariello observed that “to this point in the sequence, I’d argue the slowdown in China had been a net positive for US equities — with specific regard to the disinflationary impulse and the flow of capital. That said, coming out of a week that featured another disappointing set of data — and another dose of CNH weakness — it now feels like China growth fears can provoke a more global risk-off dynamic.”
Well, if Tony is right, then watch out below, because the bad news out of China has become a firehose that is only getting more powerful with every passing day, especially if one ignores the fake official data and looks at the truth beneath the surface.
Consider China’s official housing market statistics, which despite falling sequentially for the first time in 2023 in July, have first been remarkably resilient in the face of tepid economic growth and record defaults by developers. New-home prices have slipped just 2.4% from a high in August 2021, government figures show, while those for existing homes have dropped 6%.
Of course, China’s official data is almost as credible as that of the Biden Department of Labor; and indeed, the picture emerging from property agents and private data providers is far more dire.
As Bloomberg notes, these figures show existing-home prices falling at least 15% in prime neighbourhoods of major metropolitan areas like Shanghai and Shenzhen, as well as in more than half of China’s tier-2 and tier-3 cities.
- Existing homes near Alibaba’s headquarters in Hangzhou have dropped about 25% from late 2021 highs, according to local agents.
- In Lianyang, a downtown area popular with expats and financiers in Shanghai, residential prices have slid 15% to 20% from record highs in mid-2021.
Even as of March, before the latest property market crisis, more than half of tier-2 and tier-3 cities saw existing-home prices fall more than 15% from peaks, Guolian Securities economists wrote in a report citing data by existing housing transaction services provider KE Holdings Inc. Actual declines from peaks could be sharper, as the agency only compiles data starting November 2018, the economists cautioned.
Top-tier cities once considered resilient against a housing downturn, are also not immune. Prices of existing homes in at least five popular districts of Shenzhen have slumped 15% in the past three years, according to a July report by the property research institute Leyoujia. The southern hub is the country’s least affordable housing market.
It’s hardly rocket science what is going on here: industry insiders and economists say China’s official home-price indexes are understating the depth of the downturn (by a lot) in part because of longstanding methodologies that struggle to capture market turning points, in part because – well – all of China’s data is propaganda.
That’s heightening concern among investors about the availability of timely economic data in China, where access to some information has become increasingly restricted under the government of President Xi Jinping. It also raises questions about whether policymakers themselves have an accurate understanding of the market as they devise measures to prop up demand. Another risk is that wary homebuyers stay on the sidelines, waiting for price declines to show up in the data before they step in.
