Home China’s property market stalls amid coronavirus outbreak
February 6, 2020
The coronavirus outbreak is delivering a painful blow to the China’s $43tn property market as developers close sales centres and potential homebuyers delay the search for new flats.
The impact of the crisis on China’s property market, which some estimate makes up 25 per cent of gross domestic product, is threatening to weigh down the country’s economic growth to 4 per cent in the first quarter, according to several analysts.
That would bring the growth rate close to the full-year low of 3.9 per cent experienced in 1990, in the wake of the Tiananmen Square massacre.
“After four years of upcycle, the property sector was already at a turning point even before coronavirus hit,” said Larry Hu, head of China economics at Macquarie Capital. “Therefore, the risk is high for the property sector, which is the single most important part of the Chinese economy.”
The outbreak, which has claimed more than 500 lives and infected more than 28,000 people, originated in the central Chinese city of Wuhan. More than 40m people have been put under official quarantine, mainly in the city’s surrounding province of Hubei. The crisis has resulted in a closure of roads and other forms of transport across the country.
As early as January 26, soon after the first quarantines and shutdowns began, provinces such as Guangxi in southern China were postponing the sale of new homes. Many potential homebuyers have been prevented from going outside and viewing new homes or are too frightened to do so, according to real estate agents.
“People with money are scared to death and don’t dare run around outside,” said Tina Yu, a Beijing-based real estate agent. “No one is going to work. The real estate developments are all locked up . . . the impact will certainly be big.”
Employees in Beijing can officially return to work on February 10, but Ms Yu said there was no guarantee that property projects would allow people in by then. If the outbreak intensifies, potential homebuyers will probably stay inside for longer.
The uncertainty over how the coronavirus crisis will play out is what worries some analysts the most. Although an official Chinese government forecast has put the peak of infections within the next few days, many experts not affiliated with the government have predicted that date could be as far away as April or May.
“We’re concerned about how long this crisis will last,” said Christopher Yip, senior director in the property ratings team at S&P Global Ratings. “Any major impact could push the sector into contraction. Each day the virus intensifies, the longer it will take to subside.”
Judging by the impact that severe acute respiratory syndrome (Sars) and Middle East respiratory syndrome (Mers) had on the Chinese economy, the property sector will be one of the areas hardest hit by coronavirus, said Kinger Lau, chief China equity strategist at Goldman Sachs, who estimates the value of the market at $43tn.
“Property sales activity has basically been stopped in the last few weeks,” Mr Lau said. “It’s unclear when developers can restart their activities — both selling and manufacturing.”
The full extent of the outbreak’s drag on GDP growth this year is unclear. The lack of retail consumption, the closure of manufacturing centres, along with the halt on property sales, are expected to hurt development. Macquarie has projected that the crisis will bring growth down to 4 per cent in the first quarter, from 6 per cent in the fourth quarter of last year.