BEIJING (BLOOMBERG) – China’s top 100 developers saw home sales slump further in July, indicating that a widening mortgage boycott crisis emerging around the country has further weighed on buyer confidence.

Combined contract sales plunged 39.7 per cent from a year earlier to 523.1 billion yuan (S$107 billion), according to preliminary data compiled by China Real Estate Information Corp (CRIC), as demand remained stagnant amid an economic downturn despite government efforts to stimulate purchases.

Chinese developer shares fell on Monday morning (Aug 1), after the figures provided the first reading on property purchases since home buyers 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 per cent decrease, CRIC said in its report. From a month earlier, they fell 28.6 per cent, reversing a June rebound. Combined sales plummeted 49 per cent in the first seven months.

Sales are likely to remain soft in August on dampened buyer sentiment, and developers face more liquidity challenges, said Griffin Chan, an analyst at Citigroup. “More comprehensive and coordinated measures are needed,” he said.

A Bloomberg Intelligence gauge of Chinese property developer shares slid as much as 2.3 per cent 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 real estate sector as a longstanding crackdown on leverage and speculation hits demand. The 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 them finish the projects, while the Politburo, the Communist Party’s top decision-making body, last month vowed to maintain real estate market stability.

The authorities are considering a plan to seize undeveloped land from distressed real estate firms to help finance the completion of stalled projects, people familiar with the matter said last week.