Iron ore and steel demand to be tested further as China’s property downturn accelerates
China’s residential slump deepened in August, as expectations of a further drop in new-home prices hampered the country’s efforts to cushion the downturn.
The value of new-home sales from the 100 biggest real estate companies fell about 26.8 per cent from a year earlier to 251 billion yuan ($US35.4 billion), faster than the 19.7 per cent decline in July, according to preliminary data from China Real Estate Information Corp.
The Chinese property market is a major driver of steel demand. Iron ore is a key input to make steel, so the commodity’s price is heavily intertwined with steel demand.
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By continuing you agree to our Terms and Privacy Policy.Weakening housing demand in the Middle Kingdom has driven a $US40 per tonne fall in the iron ore price so far this year.
The accelerating slide shows the waning impact of the latest rescue package unveiled in May. At least 10 city governments have loosened or scrapped new-home price guidances to let market demand play a bigger role, a move that is expected to drive more real estate companies to cut prices.
The sector continues to be a drag on China’s economy, which needs more stimulus to meet the government’s 5 per cent growth target this year, according to Bloomberg Economics. The crisis has weighed on everything from the job market to consumption and household wealth over the past two years.
China has been considering a new funding option for local governments to buy unsold homes to prop up the market, people familiar said in August. The latest proposal would allow local governments fund their home purchases via so-called special bonds, the people said.
The country had 382 million square meters of unsold new homes as of July, equivalent to about the size of Detroit, according to the latest official data.
Cash-strapped developers — many in default for more than a year — are counting on a sales revival to persuade debt holders and fight off liquidation. Dexin China Holdings in June became the latest builder to be ordered to liquidate by a Hong Kong court.
Country Garden Holdings is considering extending payments on some of its yuan bonds again, Bloomberg News reported earlier this week.
Bloomberg
Originally published on The West Australian
