Combined contract sales plunged 39.7% from a year earlier to 523.1-billion yuan (R1,3-trillion), according to preliminary data compiled by China Real Estate Information, as demand remained stagnant amid an economic downturn despite government efforts to stimulate purchases.

Chinese developer shares fell on Monday morning, after the figures provided the first reading on property purchases since homebuyers nationwide began refusing to pay mortgages on stalled projects. A revival of home sales is needed to generate cash for debt-laden developers like China Evergrande Group and reduce mounting pressure on banks and the economy. 

“Overall market demand and purchasing power have been overdrawn, while the industry confidence is also at a low level,” CRIC said in the report. “Developers are still facing heavy destocking pressure in the short term.” 

The year-on-year decline in home sales was smaller than the previous month’s 43% decrease, CRIC said in its report. From a month earlier, they fell 28.6%, reversing a June rebound. Combined sales plummeted 49% in the first seven months.

A Bloomberg Intelligence gauge of Chinese property developer shares slid as much as 2.3% to the lowest level since March. The drop also followed news that Evergrande failed to deliver a preliminary restructuring plan by the end of July as promised, instead laying out principles for a future debt overhaul. 

The Chinese government has been racing to rescue its all-important property sector as a long-standing crackdown on leverage and speculation hits demand. Authorities have cut borrowing costs and down payments among other measures to shore up a sector that accounts for about a quarter of the world’s second-largest economy.

Financial regulators have also urged banks to boost lending to builders to help finish the projects, while the Politburo, the Communist Party’s top decision-making body, last month vowed to maintain property market stability. Authorities are considering a plan to seize undeveloped land from distressed property firms to help finance the completion of stalled projects, people familiar with the matter said last week.

China’s overall property loans rose at the slowest rate on record as of the end of June, as banks were cautious about lending to cash-strapped developers while household demand for mortgages was weak. New home prices fell for a 10th straight month in June.

CRIC said local authorities around the country are expected to further ramp up property policy stimulus, with the country’s second-, third- and fourth-tier cities expected to further ease restrictions.

Cities under heavy pressure from the property slump will likely implement fiscal measures to stimulate home buying and stabilise market expectations, the report said, adding that ensuring delivery of housing projects would be an important task for builders as stressed at the latest Politburo meeting. BM