Less is more in China's volatile housing sector

Photo: VCG

China’s drive to curb property prices and lower the sector’s potential risks have led more than 270 highly indebted developers to go bankrupt.

Eliminating companies with poor operational status will make the sector less volatile and help stabilize the overall economy as it encounters downward pressure, analysts said.

According to data from the website of the People’s Court Announcement, 274 bankrupt statements had been released as of Wednesday this year. Most of those cases involved small and medium-sized companies.

Rising financing difficulties are a primary reason for the bankruptcy of small and medium-sized housing enterprises, experts said.

Real estate development requires massive capital resources, and many companies bear high debt ratios as a result, Zhang Hongming, senior research fellow at the Shanghai Academy of Social Sciences, told the Global Times on Thursday.

The total debt ratio of China’s 90,000-plus property developers stood at 84 percent in 2018, the Xinhua News Agency reported on Wednesday, citing Huang Qifan, former mayor of Southwest China’s Chongqing and vice chairman of the China International Economic Exchange Center.

After rapid growth in recent years, the housing industry has become overheated, Zhang said, and local governments have taken steps to head off bubbles in the property market. 

Data released by the National Bureau of Statistics (NBS) on July 15 showed that prices of commercial housing in 70 mid-sized and large cities were mostly stable in June.

Prices of new commercial residential housing in the four first-tier cities (Beijing and Shanghai, as well as Shenzhen and Guangzhou in South China’s Guangdong Province) rose 0.2 percent month-on-month, 0.1 percentage point lower than the previous month, the NBS said.

“China’s housing industry will keep growing, by a slower pace,” Zhang said, adding that the number of small and medium-sized companies in the sector will decrease in line with the general direction of China’s housing industry.

Also, merger and acquisition activities will increase and yield more giant developers, Zhang noted.

It’s normal for small and medium-sized enterprises that have operating difficulties to go bankrupt when the competitiveness of an industry keeps rising, Hui Jianqiang, a veteran industry analyst, told the Global Times on Thursday.

Amid the China-US trade war and the Chinese economy’s downward pressure, stability in the real estate sector could provide support to the economy as a whole, Hui noted.

China has the largest real estate developers in the world. Five real estate companies listed on the Fortune Global 500 released on Monday are all from China, such as Evergrande Group and Country Garden, reported nbd.com.cn on Thursday.

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