China’s Plunging Property Market to Deliver a ‘Severe Blow’ to Growth: Nomura

China’s plummeting home and land sales are poised for further falls that will undercut growth and government revenues, Nomura Holdings says.

“We believe a rapid weakening in the property sector will cause a severe blow to headline GDP growth and government revenue,” said Lu Ting, Nomura’s Chief China Economist in Hong Kong.

High-frequency data for the first 18 or 19 days of September – up to last weekend – indicated a further slowdown in property markets.

“Year-over-year growth in volume terms of new home sales, existing home sales and land sales in our tracked samples dropped further to -25.5%, -43.6% and -37.3%, respectively, for the first 18 or 19 days of September from -22.5%, -39.5% and -21.7% in August,” he said. “Land sales growth in value terms remained subdued at -42.7% for 1-19 September, despite improving from -64.3% in August.

A breakdown of the data shows that low-tier cities have fared much worse, he said. Growth in land sales revenue and property-related tax both slumped to -17.7% year-on-year and -5.4% in August from 0.3% and 8.2% in July, respectively, according to the Ministry of Finance.

Beijing, said Lu, “is still determined to maintain its property tightening measures.”

Evergrande spooks investors

Meanwhile, DBS analyst Samuel Tse said the worsening situation of Evergrande, whose shares have plummeted about 85%, “continues to haunt the market.”

“Evergrande has already announced a 28% price cut for new homes, 46% cut for unsold retail shops, and 52% cut for car parks,” he said in a note on Tuesday.

Potential defaults had spilled over to other Chinese property companies with weak financials, Tse wrote, noting that the share price of Sinic Holdings dropped by 87% on Monday.

The central bank injected $14 billion of short-term cash via a reverse repo into the economy last Friday – and he expects more from the PBoC in the near future.

“We expect another 50bps cut of RRR to be announced in the next couple of weeks,” he said. ”This could allow developers with relatively healthier financials to acquire projects of Evergrande.”

• By Jim Pollard