Formue

Finanshuse: Det kinesiske ejendomsmarked styrer mod en katastrofe

Uddrag fra Goldman, JPM og Bank of America

China property is back in the focus again after Evergrande CEO and CFO firings. The problems here are of course not new, and have so far not been able to really “contagion shake” world assets, but never say never…..Let’s examine the latest data-points

China property: It is only the largest asset class in the world…

China property….Currently estimated to be a total of $62T in total value.

CEIC

GS raising China Property HY default rate forecast to 45% in 2022

“Although we do not expect systemic risk concerns to emerge, risks are rising. The incidences of mortgage payment suspensions highlight widespread construction delays, and reflect acute funding stresses amongst developers. Credit stresses within the property sector continue to rise, with the YTD China Property HY default rate reaching 28.7%, and we are raising our FY22 forecast to 45%, from 31.6% previously”

Goldman

The wave of mortgage suspension requests

Since June 30, mortgage suspension requests due to delayed home delivery have expanded to more than 300 projects in different parts of China. JPM’s equity research team estimates that, assuming 1,000 units per project with an average RMB1.1 million home value per unit, these requests represent a total value of RMB330 billion (or a mortgage value of RMB132 billion if assuming 40% LTV).

JPM

The pre-sale system in China

In 2021, advanced payment and mortgages jointly accounted for 50% of total funding for real estate developers, compared to 11.6% from bank loans.

NBS

China construction halts

Construction halts in China may affect $700 billion worth of homes. The percentage of presold residences that have been stalled could rise to 8% from the current 4%.

Bloomberg

Trillion loss

If property prices decline by 40%, banks’ losses would reach close to Rmb1tn, assuming a 50% recovery

Hua Securities

JPM: Be wary of the macro risk

Many have emphasized that housing poses the biggest macro risk for the Chinese economy this year, and the mortgage suspension episode has intensified the concern. JPM: “The macro risk may intensify if local governments are not able to deliver a prompt resolution, and homebuyers’ confidence may further deteriorate. As homebuyers do not have the expertise to distinguish between good and bad developers, they may choose to stay away from pre-sold homes or projects developed by non-SOE developers”

JPM

Goldman: Systemic risks remain in check

Goldman believe the financial impact from mortgage payments suspension is manageable. This is because of: “1) mortgage loans in China are recourse in nature, and 2) household deposits more than cover total household borrowing (1.5X as of FY21). Quantitatively, the analysis suggests that negative equity mortgage loans are unlikely unless property values decline by more than 30%”

Furthermore, GS believes systemic risks remain in check within the banking sector. GS: “We see no signs of systemic risks pressure despite rising stresses within the property sector. According to our China Banks team, China’s banking system has significant capacity to absorb property credit losses, with Rmb10tn in systemwide risk buffers. They believe that, even in a bear case scenario in which losses emerge in the non-property loan book, large banks are well positioned to absorb rising non-performing loans” (Goldman)

High yield hell

73% of China Property HY bonds are currently priced below 35 (cents on a dollar).

Goldman