The next stage of China’s property market slowdown is likely to occur in the land market. With developers’ financing channels under pressure, land transations and sales revenues are falling by record margins, with a 43.3% y/y drop in 100-city land transactions so far in September. These declines are piling upon already fragile fiscal conditions for China’s localities. Several cities and provinces facing heavy debt burdens are more vulnerable to declines in land sales, particularly in China’s southwestern regions.
One critical risk to watch is the potential for localities to use the Evergrande saga to renegotiate their own debts, to add pressure on Beijing to step in, or to hide behind the headlines. The November Party plenary meeting will provide an opportunity for local officials to lobby for policy easing toward the property sector and localities’ financing.
