China property sector weakened sharply this year

China'spropertysector,amajordriverofeconomicgrowth,hasweakenedsharplythisyearasBeijingcracksdownonspeculatorsandindebteddevelopersinabroadpushtoeasefinancialrisks,withpricesofnewhomesdownforthefirsttimeinsixyears.

Inthenearterm,manyanalystsexpectauthoritieswilltrytostabilisethesector,whichaccountsforaquarterofgrossdomesticproductbysomemeasures,althoughthereisuncertaintyoverwhichpolicyleversBeijingwouldpull.

Authoritieswouldhavetoaddressandnavigatechallengesonmultiplefronts:debtrisks,cost-of-livingpressures,worriedhomeowners,andtheneedtoboosteconomicgrowth.

Growing financial risks

Concernsovergrowingfinancialrisksareaprimarydriverofthecrackdown.

China'spropertysectorisheavilyreliantoncredit.Asoftheendofthesecondquarter,Chinese

developersowed33.5trillionyuan($5trillion),orathirdofthecountry'sGDP,accordingtoNomura.

Sinceauthoritieslastyearunveiledthe"threeredlines" - asignificantpolicyplankaimedatlimitingdevelopers'liabilities-to-assets,netdebt-to-equity,andcash-to shorttermborrowingratios-manycompanieshavegrowndesperatelyshortofcash.

Astringofmissedoffshoredebtpaymentsandsell-offsinsharesandbondsfollowed,withChinaEvergrandeHoldings,theworld'smostindebteddeveloper,repeatedlylurchingtothebrinkofdefault.

BankersandanalystssaythatBeijingisunlikelytorelaxthe"threeredlines"policyanytimesoon.

Imposing lending restrictions

Authoritieshavealsoslappedlendingrestrictionsonmortgagestodeterspeculativehomebuying.

China'smajorcitieshavesomeofthehighest-pricedrealestateintheworldcomparedtoaveragelocalearnings.

ItwouldtakedecadesofsavingstoaffordanapartmentinBeijing,ShanghaiorShenzhenforsomeonewithastandardsalaryinthosecities.

Manywhoworkinthesemegacitiesmusteventuallyreturntotheirhometownsormovetocheaperinlandcities.Cost-of-livingpressureshaveledsomeyoungpeopletoembraceapassivelifestyleknownas"lyingdown."

PresidentXiJinpinghaspledgedtoreduceinequalityandensurethathousingisforlivingin,notspeculation.

Pricesofnewhomesdropped0.2%onaveragelastmonthfromSeptember,accordingtoReuterscalculations,thefirstdeclinesince2015.

A brake on government policy

Onthewhole,theinterestsofmillionsofconcernedhomeownersarelikelytoactasanimportantbrakeongovernmentpolicytoexcessivelycoolthesector,sayanalysts.

Sometwo thirdsofthewealthofChina's1.4billionpeopleistiedupinresidentialproperty.Over90%ofurbanhouseholdsownhomes,oneofthehighestratesintheworld.

Buyingisfuelledbyexpectationsthatthegovernmentwillensuresustainedgrowthinthesector,aswellasbystrongsocialpressurestopurchaseahousebeforemarriage.

Worriesthatatoo-rapidslowdowncouldsparkamarketfreefallandsocialunrestwillweighheavilyonChina'sstability-obsessedgovernmentasittriestobalancetherisksandrewardsofpushingthroughreforms.

Growing concerns over growth

Concernsovergrowthcouldalsolimitregulators.

PropertyandrelatedindustriesaccountforaboutaquarterofChina'sGDP,analystsestimate,anddrivedemandformountainsofsteel,cementandothermaterials.

GDPgrowthisalreadyslowingsharplythisyear,withthepaceeasingofftojust4.9%inthethirdquarterfromablistering18.3%inthefirst.

Afurthersignificanteconomicdownturncouldhaveramificationsacrosstheworld.

IfChina'scurrentpropertyslumpfollowsthepatternofthelastonein2014-2015,globalGDPgrowthcouldbedragged0.7percentagepointslowerinthelastquarterof2022,withmetalandironorepricesplummeting,accordingtoareportbyanalystsatOxfordEconomics.

AmoreseveredeteriorationcouldhaveChina'sGDPgrowthbottomingoutat1.0%inthefirstthreemonthsof2023,andglobalgrowthtakingasubstantialhit.

"TheworsthitcountrieswouldbethoseforwhomexportstoChinaareparticularlyimportantandcommodityexporters,"saidtheOxfordanalysts.