The “Mighty 100” is a term frequently discussed in the context of the Chinese real estate industry.
In Chinese, this “Strong 100” designates the top 100 real estate developers in the country. Naturally, most of the major Chinese real estate developers are included in this list.
On December 2, the Chinese business media all published shocking news about the “100 forts”.
According to CRIC Research, a private research institute that compiles and analyzes real estate information across China, total sales of the “Strong 100” in November of this year were around CNY 750 billion (about CNY 13,400). billion yen, or $ 117.5 billion USD), down 3.4% from October and 37.6% from the same period last year.
Of the various statistics used to examine economic conditions, year-over-year comparison is generally considered the most important. For example, a country’s economic growth rate, expressed as a year-to-year comparison, is the most appropriate indicator of an economy’s growth or decline.
As a result, the fact that the combined sales of China’s “Strong 100” real estate companies fell nearly 40% in November compared to the same period in 2020 surprised the country’s financial media and sent major shockwaves through the world. estate market.
These figures testify to the rapid cooling of the Chinese real estate market and the emergence of a serious situation which could shake the real estate sector within it.
One of the causes is the recent emergence of information on the debt problems of the China Evergrande group, one of the main Chinese real estate development giants. Since then, domestic investors have become increasingly worried about the future of the real estate market and have started to divert their investments away from real estate.
While the future of the real estate market remains in question, the China Index Academy, a private research institute, released some statistics on December 1 that suggest a bleak future for the real estate market.
In order for real estate companies to develop properties in China, the right to use the land must first be transferred to them by the government. According to statistics from China Index Academy, the total amount of land transfer fees paid by “Strong 100” companies from January to November 2021 was CNY 2,346 trillion in the same period in 2020.
While this 17.7% drop is a very serious figure, another set of figures released by the same research institute is even more shocking.
In November 2021, the top 50 “Strong 100” companies paid 72.3% less for land transfers than in October of this year, and 91.4% less than the same period in 2020.
The 72.3% and 91.4% declines are extremes rarely seen in the economy. What this sharp drop in land transfers means is that real estate developers have made the decision not to develop any real estate at this time, in anticipation of a cooling of the real estate market.
As winter approaches, it looks like China’s real estate development industry may go into “hibernation.” If this becomes a reality, the blow to the Chinese economy as a whole could be unfathomable.
Last year in 2020, real estate investments across China totaled approximately CNY 14 trillion (approximately JPY 250 trillion, or US $ 2.2 billion) for the year. China’s gross domestic product (GDP) for 2020, the same year, was just over CNY 100,000 billion (JPY 1.8 quadrillion, or US $ 15.8 trillion), which shows that real estate investment represents around 14% of GDP.
Taking into account the spillover effects, it is commonly accepted in China that around 30% of the economy depends on real estate development.
If China’s real estate development industry goes into “hibernation”, we could see an immediate and significant drop in China’s economic growth rate that could capsize the entire economy. It looks like the Chinese economy is about to enter another “harsh winter”.
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(Read the Sankei Shimbun China Watch review in Japanese on this link.)
Author: Seki Hei
Find other articles by the author in English on JAPAN Forward on this link.