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China home prices fall as real estate slowdown threatens economic outlook

New home prices in China fell for a second straight month in October, as a slowdown in the property market and increasing difficulties for property developers dimmed the country’s economic outlook. .

New home prices in China’s 70 largest cities fell 0.25% in October from the previous month, according to data from the country’s National Bureau of Statistics.

This indicator also dropped lower in September for the first time in more than half a decade, highlighting mounting pressure on policymakers who have sought to limit debt growth in real estate sector but currently facing liquidity issues at many developers.

Last week, the US Federal Reserve warned that tensions in the real estate sector, which directly and indirectly account for more than a quarter of economic activity in China, poses “some risk to the US financial system”.

Tommy Wu, an economist at Oxford Economics, a research group, pointed to a 24% drop in home sales in October compared with the same period a year ago, and said the property downturn was “loading on industry” at a time when economic momentum remains. Weak.

“We think China’s property slowdown will be substantial but manageable, given low unsold housing stock, policy easing, continued urbanization and income growth,” he said. significantly,” he said.

Goldman Sachs analysts said prices were up 3.4% year-over-year but added that “only a few cities had higher property prices in the primary and secondary markets in October.” .

A crisis at Evergrande, the world’s most indebted real estate company, emerged over the summer and has since spread to a host of developers who make up a large portion of the broad high-yield bond market. larger than Asia. Many people are having difficulty accessing new sources of finance.

In recent months, amid falling land sales, state developers have calculated most land purchases at auctions across 22 major Chinese cities.

Last year, China introduced restrictions on borrowing for developers amid concerns about a property bubble in the country’s property market and an increase in mortgage lending limits. Last week, reports in the state media pointed to the possibility of easing in some aspects of the approach.

Iris Pang, chief China economist at ING, noted concerns that property developers would default on loans and construction shutdowns, but said worries “may be overdue” and points to the prospect of continued implementation of unfinished projects and measures by local governments to limit price declines .

On Monday, Sunac, one of China’s largest developers, said it had raised nearly $1 billion selling new stock as well as shares in its services unit. Kaisa, a major borrower in international markets, said on Friday that it would not pay an interim dividend after a week of its bond payments being closely monitored.

Official data on Monday also showed retail sales beat expectations for a 4.9% increase year-on-year. Industrial production, which last year was a big driver of China’s rapid recovery from the pandemic, increased by 3.5%. In the third quarter, the economy grew at a rate of slowest pace in a year.

According to calculations by Oxford Economics based on official data, nominal property investment reached 5.4 per cent in October, but was still up 7.2 per cent year-on-year.

Additional reporting by Andy Lin in Hong Kong

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