As per figures compiled by Bloomberg, the combined net income for the 136 real estate firms that disclosed earnings in Hong Kong and China fell 87% in the first six months of 2022 to 17.6 billion yuan, equivalent to $2.5 billion. Numbers this dismal have not been witnessed since the records started to be archived in the aftermath of the 2008 financial crisis.
The majority of the impact on the real estate market in 2022 was caused by a crackdown on leverage, China’s tough Covid Zero policy, and a faltering economy. Following announcing a net income decline of a record 96%, the biggest developer by sales volume, Country Garden Holdings Co.,cautioned that the crisis had not yet reached its peak.
A benchmark of real estate developers is down 27% this far in 2022, despite government intentions to reduce mortgage rates and provide guarantees on some forthcoming onshore bond offerings. Due to a lack of capital, China has experienced a historical record number of corporate bond defaults.
There has been more insight from the earnings season regarding who would profit and lose from the continued real estate problems. Strong financial reserves and the capacity to avoid several hazards allowed state-owned companies to do better than their competitors in the private sector.
According to investors, the ideal course of action is an industry consolidation to prevent a deflationary cycle in which too many businesses contend in a market that is constantly contracting. Additionally, this could relieve pressure on the prices of housing real estate. There will not be many opportunities for growth before the suggested consolidation.