Tuesday, December 6, 2022

As the real estate market in China continues to slump, are real estate investors turning to India?

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Last week, the Chinese government released data showing new home prices fell at their fastest pace in more than seven years, while real estate sales measured by floor space fell for a 15th consecutive month in October.



Based on data from the National Bureau of Statistics Chinafor the year-to-date period to October, investment in real estate development fell 8.8 percent compared to the same period last year, commercial floor space sold fell 22.3 percent, while sales of commercial buildings sold plunged 26.1 percent per cent .

In India, the real estate price index has grown steadily in recent years. The Everything India House price index (HPI) published by the Reserve Bank of India (RBI) grew 3.5 percent year-on-year for the quarter ended June (Q1: 2022-23), an increase of 1.8 percent compared to the prior quarter.

While China is now taking steps to revive its real estate sector, real estate investors such as Singapore’s CapitaLand Investment (CLI), which has a third of its assets in China, are trying to diversify their portfolios. Vietnam and India were mentioned by CLI as possible destinations for future investments.

With the real estate sector accounting for about a quarter of China’s $17 trillion economy, concerned Chinese authorities have taken steps in recent months to restore confidence to the collapsing sector. Earlier in November, in the industry’s most comprehensive rescue package since it was hit by a debt crisis last year, regulators unveiled 16 support measures primarily aimed at boosting liquidity for developers.

Key measures include allowing banks to make maturing loans to developers, supporting real estate sales by reducing the size of down payments and lowering mortgage rates, encouraging other funding channels such as bond issues , and ensuring the delivery of pre-sold homes to buyers.

Some analysts say the stimulus measures are the strongest signal yet that the two-year suppression of the real estate sector is over.

China economist at UBS Tao Wang told CNN that the package of measures is a “turning point” for China’s real estate industry. Along with other policies announced earlier this year, she estimates it could inject more than 1 trillion yuan ($142 billion) into real estate.

The Chinese government began trying to curb excessive developer lending in August 2020 to contain rising house prices. The move sparked turmoil in the real estate market as the country’s second-largest developer, Evergrande, defaulted on its debts. When the real estate industry collapsed, several large companies sought protection from their creditors. The cash crisis delayed or suspended work on many pre-sold housing projects across the country.

China’s real estate sector was hit hard as developers lurched from crisis to crisis, halting construction of apartments because they ran out of money. Real estate prices and transactions are falling. In addition to rising developer debt, China’s strict COVID policies amid rising coronavirus cases impacted manufacturing and consumer spending.

The crisis took a turn in the middle of this year when angry homebuyers refused to pay mortgages on unfinished homes, sparking fears of contagion and shocking financial markets. Since then, authorities have tried to defuse the crisis by urging banks to increase loan support for developers so they can complete projects. Regulators have also lowered interest rates to restore buyer confidence.

According to data from the National Bureau of Statistics of China, average new house prices in China’s 70 major cities fell 1.6 percent year-on-year in October 2022, after falling 1.5 percent a month earlier. It was the sixth consecutive month of falling new home prices, the strongest pace in the series and the fastest decline since August 2015.

Sales of the top 100 real estate developers fell 26.5 percent from a year ago in October, according to a private survey by China Index Academy, a real estate research firm. So far this year their sales have plummeted 43 percent.

While the government welcomed the measures to support real estate, analysts remained cautious about the impact it would have on buyer confidence.

“The real estate market has yet to show signs of recovery,” Nomura analysts said in a research report last week, adding that the latest measures may have “little direct impact” on boosting home purchases, adding that the zero-COVID strategy will weigh on the industry.

While the measures are believed to support the real estate market, bankers and analysts say they only address supply problems in the real estate market, with demand recovery still a major concern. Many people are still reluctant to upgrade their homes or buy new ones because of economic uncertainty and declining employment.

Despite the current doom and gloom, there is one company that is confident about the long-term future of China’s real estate market, Singapore’s CapitaLand Investment (CLI). It currently has about a third of its total real estate portfolio, which consists mainly of non-residential commercial real estate, in China.

In an interview with Nikkei Asia, CLI said it plans to diversify its portfolio and looks to investment opportunities in Vietnam and India. The aim is to build resilience in areas such as supply chain and energy amid shocks to globalization during the COVID-19 pandemic.

CLI, whose largest shareholder is Singaporean state investor Temasek Holdings, is one of Asia’s largest asset managers with USD 90 billion in assets and USD 63 billion in assets under management

“We would like to do more in Vietnam, we are already very active in India,” Chief Financial Officer Andrew Lim told Nikkei. “What recent events have taught us is that it is probably dangerous to put all your eggs in one basket… at a time when globalization is increasingly being challenged.

Lim thinks Vietnam will become a major destination for capital in the post-COVID era, especially with regard to manufacturing. While India has huge solar resources. “These are markets if you’re looking for energy redundancy, energy resiliency, renewables, from that perspective it suddenly becomes important.” (ANI)

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