China’s new construction starts tumbled over 30% on year in October amid cash crunch in real estate sector

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Chinese property developers have slashed investment amid a sector-wide cash crunch and new construction starts, a leading indicator of real estate activities, slumped by more than 30% in October from a year earlier.

According to data released by the National Bureau of Statistics (NBS) earlier this week, new construction starts declined by 7.7% in the period of January – October from a year earlier to 1.667 billion square meters.

In October alone, new constructions starts slumped by 33.1% from a year earlier to 138 million square meters, show calculations based on the NBS data, marking the lowest level since March 2018 and sliding by 30.8% from the same period in 2019 when comparison base was already low due to the impacts of the Covid-19 pandemic.

October marks the seventh consecutive month of year-on-year decline in the metric and in particular the sector has seen double-digit drop since the third quarter this year. In July, August and September, new construction starts fell by 21.5%, 16.8% and 13.5%, respectively, compared to the same period last year.

In the first half of the year, new construction starts reached 1.013 billion square meters, growing 3.8% from a year earlier, before it slipped to decline, with new construction starts down 0.9% in January – July, down 3.2% in January – August and down 4.5% in January – September.

“Given the difficulties in cash collection from home sales and in getting funding, private developers are unable to start new projects,” according to a research from the China Real Estate Information Corporation (CRIC) on Monday.

A staff at a mid-sized property developer headquartered in south China said that the company is no longer holding investment strategy meeting since October. “Some people who used to work for the investment department have been transferred to sales positions.”

“The current strategy is to do everything to survive and to cut spending and investment as much as possible,” he said.

A person from anther developer said that many real estate companies has suspended or slowed new constructions to cut spending.

The crisis in the real estate sector has started to shaken confidence in the downstream supplies and construction contractors. According to the CRIC research, the whole society in China is pessimistic about the outlook of the housing market, with suppliers and contractors worried about payment and many projects left unfinished.

That has led to a rapid decline in project completion. According to data from the NBS, in October alone, completed real estate projects slumped 20.6% year over year to 62.77 million square meters. For the first ten months of the year, project completion grew 16.3% from a year earlier to 570 million square meters, driven by rapid growth earlier this year.

Huatai Securities said in a note on Monday that, “based on NBS data for October, there is risk that real estate fundamentals could stall.”

“Ensure home delivery is the bottom line for property developers and fast drops in completed construction may prompt further policy adjustment.”

BOC International said in a note on Tuesday that “some local governments have introduced some measures to help developers ensure home deliveries, and homebuilders are expected to use more of their funding for construction completion.” The bank expect the drop in completion to narrow in November and December and the full year of 2021 will likely see a double-digit growth.

The central government have repeatedly sent signals of relaxation in real estate financing and the policy “bottom” is approaching, it said.