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China property stocks slump

Chinese property developers have experienced their biggest drop in real estate stocks since 2012 in trading on September 26.

This comes after an 8-month growth spurt, which saw the value of the Chinese property index surge more than 80%, and led to a 32.6% increase in land prices year on year.

In January 2017, Ning Jizhe, head of the NBS and deputy director of the National Development and Reform Commission, told China Daily that real estate's 6.5% contribution to China's overall gross domestic product (GDP) was likely to drop.

Jizhe said that authorities wanted to create a stable real estate environment where housing supply meets population demand.

"The construction sector and the real economy part of the property market are pillars of the country's economic growth and they are important for meeting mass housing demand."

Real estate's contribution to Chinese local governments' fiscal GDP is 35%. Despite the positive contribution of real estate to China's economic growth, authorities have implemented tighter regulations as soaring prices and the growth rate will soon exceed demand.

But the problem of supply verses demand is only second to the problem of debt owed to the banking sector. Between 2010 and 2014, China's real estate owed the banking sector $120bn and between 2015 and 2016 alone, it increased to $411bn – all of which is due in the next two years.

For the Chinese government this is not a new matter, but a problem they have been trying to curb since October 2016 when Beijing began strengthening domestic bond insurance rules, ceased loans for purchasing land and increased offshore bond sales starting in April 2017.

According to Xinhua Finance, some real estate developers have already seen a 2-8 percentage point increase in costs because of the stronger regulations the Chinese government has implemented.

Greenland Chairman Zhang Yuliang predicted that 20% to 30% of real estate developers will fold per year if circumstances continue.

These regulations not only impact real estate developers but also local government, entrepreneurs and the industry sector, which provides 40% employment to the 1.4-billion population of China. In 2014, the real estate industry was responsible for a minimum of 90-million jobs.

In 2012, the city of Wenzhou, southeast China, experienced a property value slump that saw properties lose more than half of their previous valuation.

The local government there, which had relied on sales of public land to make up 40% of its total government revenue annually, took a hard knock.

Entrepreneurs who invested in real estate also suffered great losses.

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