Crisis in China’s property market threatens its broader economy

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World’s second largest economy battling to avoid a deflationary spiral as developers default leaving in their wake personal and economic misery

, one of China’s biggest private developers, miss interest payments on two offshore bonds and suspend trading in a dozen onshore bonds. Sino-Ocean, a state-backed developer, said it missed $20.94 million in interest payments and suspended trading on 6 per cent guaranteed notes due in 2024.

The state owns all the land in China and local governments lease it for 70 years to developers for residential use and 40 years for commercial use. Land sales have become a crucial source of revenue for local governments, which do not levy property taxes, and the downturn has left many of them struggling to finance their operations.

She could not afford to buy an apartment in the centre of Beijing so she went to the outskirts of the city, choosing an apartment within an ambitious development including a theme park, an indoor tropical botanical garden, an artificial ski slope, a theatre, a conference hotel and a shopping mall. She had to pay 50 per cent of the total price as a down payment but the project had the right certification to guarantee her a bank loan to cover the rest.

The moves were part of a strategic plan to shift investment away from property into manufacturing, particularly in green technology. But even as more apartment buildings stood empty, local governments continued to lease land and developers continued to borrow from shadow banks to fund new building.

 

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