What's Up With China's Real Estate Sector?

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Every morning, one of China's many large real estate firms is in the news, and not for happy reasons. 

What's Going On?

Construction and finishing of new homes makes up almost 25% of China’s economy, per The New York Times. Through the last 20 years, easy debt and rampant speculation have helped China build the equivalent of 140 sq. ft. of new housing for every urban resident. 

But come H2, 2021 and China's real estate balked under financial pressure. 

Big Brands Are Sweating

The Evergrande Group is merely the largest and most visible of an ever growing list of real estate developers in China that are facing extreme financial difficulty lately. 

Kaisa Group, China Aoyuan Property Group and Fantasia are among other prominent builders that have struggled to make payments as bond investors become more wary of lending money to China’s real estate sector.

Demand Is Sinking

And that's setting off a chain reaction in the economy. As real estate developers try to conserve cash, they are starting fewer construction projects, creating a big problem for the economy. 

The price of steel reinforcing bars for the concrete in apartment towers, for example, dropped by 25% in October - November before stabilizing at a much lower level in December.

On the flip side, the drop in home prices in smaller cities has hurt the value of people’s assets, which has eroded their confidence in real estate investments. 

Even in Shanghai and Beijing, apartment prices are no longer surging, a complete trend reversal from what is happening with housing prices across the world. 

Is There A Quick Fix?

Yes. By returning to the era of lavish lending by China's state-controlled banks, feel some experts. Others say the policies may be loosened, but there can be no return to the past.