ISTANBUL

China’s housing market crisis, a core pressure point for the world’s second-largest economy, is deepening as house prices continue to fall, weighing on construction activity and spilling over into related industries such as cement and steel.

The prolonged downturn has had broader economic consequences in China than in many other countries, given the sector’s central role in the country’s growth model, social structure, and financial stability.

At its peak in 2015, the housing sector accounted for nearly 30% of China’s gross domestic product (GDP), but that share has fallen to around 15% following years of contraction. While stabilizing the housing market is widely seen as key to reviving domestic consumption, Beijing has remained cautious about deploying large-scale stimulus measures.

In November, new home sales fell 0.4% month-on-month, while second-hand home sales declined 0.7% year-on-year. Concerns intensified after real estate developer China Vanke faced debt repayment problems, prompting ratings downgrades that highlighted the depth of stress across the sector.

Fitch Ratings downgraded Vanke’s long-term foreign and local currency issuer default ratings from “CCC-” to “C,” while also lowering the rating of its wholly owned subsidiary, Vanke Real Estate Hong Kong.

S&P Global Ratings similarly cut Vanke’s rating, citing expectations that the developer faces a substantial bond maturity wall over the next six months and heightened risks of forced restructuring.

The developments have added pressure on Beijing to support the broader economy, while also reviving fears that turbulence in the housing sector could intensify. Analysts say Vanke’s difficulties could eclipse earlier defaults by firms such as Evergrande and Country Garden.

The ongoing crisis continues to pose risks not only to real estate developers but to China’s wider economic outlook.

- ‘For years, indebted real estate firms have brought macroeconomic dangers’

Sadi Kaymaz, an Asian markets analyst, told Anadolu that the Chinese economy has two contrasting sides — one rising and one dark — with technological advances such as electric vehicles (EVs), solar energy, and batteries representing the growth side, while the real estate sector embodies the darker side.

“I call it the ‘dark side’ because it’s been a source of inefficiency for years now,” he said. “Over the past decade, it’s brought much financial risk.”

“Excessive construction and heavily indebted real estate companies have brought macroeconomic dangers with them for years now,” he added.

Kaymaz said the real estate sector continues to shrink as sales decline and profitability remains largely negative, leaving many residential developers burdened with heavy debt and unable to meet even interest payments.

“Vanke is just one of the dozens of firms that have reached this state, but the difference is scale and size,” he said. “Vanke was one of the country’s three largest residential constructors, headquartered in Shenzhen — one of China’s wealthiest cities — while partnered by the city’s metro operator.”

“Despite its debt burden, the market opinion was that of public support for many years; however, the Shenzhen government-owned institution suddenly demanded collateral in exchange for financial support, tightening its new credit limits, which sent shockwaves through the market and completely changed its public perception,” he added.

- Vanke’s cash may cover only 40% of short-term debt

Kaymaz said about 70% of the loans extended to Vanke as of the end of October were unsecured, indicating reliance on public-sector backing as the company’s free cash flow remains insufficient to meet obligations.

“Collateral and financing options are rather limited and the field is narrowing,” he said. “Vanke only has to repay $800 million in bonds in the coming days, but next year, over $1 billion will be due — its cash positions, which are at its lowest since its foundation in 1992, are enough only to cover 40% of its short-term debt.”

Kaymaz noted that Vanke has suffered a 40% decline in sales revenue this year, with its financing gap estimated at $14 billion, warning that the company may struggle to survive without state support.
“For bondholders, restructuring or defaulting are the risks on the table,” he said.

“In a potential similar instance, what will happen to companies that receive this sort of covert support from the public sector, then,” he asked.

“This part is quite important, as after all, the real estate concerns that began with Evergrande five years ago still continue — many companies struggle to stay afloat due to low household confidence and insufficient domestic consumption, which can be considered to be the biggest contributors to the major financial difficulties constructors are facing,” he added.