Property developers are under escalating financial pressure—from the “three red lines” limiting debt growth, from declining sales, and from banks. Q3 financial results from listed developers show deteriorating cash positions and the largest quarterly contraction in net financing cash flows since at least 2015. Cash from sales were the weakest since the COVID outbreak, and the lag between sales and reported cash positions indicates there will be a sharper drop in Q4. Conditions are likely worse for smaller, unlisted developers.
Regulators are trying to arrest this trend and keep loans flowing, but this would require banks to put aside the evidence of regulatory controls and weakening fundamentals in the property sector. Beijing could not limit lending to the sector as the property market expanded, nor are they likely to control banks’ risk aversion with the industry in decline.
