Beijing is expected to roll out a stimulus package for the property sector, after home prices and investment began decelerating this quarter.
Such a package is likely to include measures that will help developers improve their liquidity to restore market confidence while boosting demand, especially in China’s core cities, analysts said.
“Regulators will be more serious about rescuing the sector,” said Raymond Cheng, managing director of CGS-CIMB Securities. Lowering down payments from 30 per cent to 20 per cent, reducing mortgage rates and cancelling home purchase restrictions are among potential steps that could revive demand, he added.
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Momentum in sales slowed after April, as homebuyers became wary of China’s faltering economic recovery, worsening unemployment rate and declining household incomes. Private developers have defaulted on their bonds recently due to weaker-than-expected sales and difficulties in accessing financing. Land sales in small cities also remain weak.
Moreover, to help developers, the authorities might refine the 16 measures announced last November, he said, as many of these measures were only partially implemented and left developers with challenges when it came to obtaining financing.
“Only a few stronger developers have benefited” from China’s so-called three-arrow support measures, Cheng said.
China’s capital markets are also ousting developers that have yet to recover from liquidity crises, forcing them to delist one after another, removing another financing channel.
Chinese developer Languang forced to delist, with peers to follow
Market observers are concerned that if the recovery in the property sector continues to be uncertain, it will eventually weigh on China’s economic growth. China is aiming for a 5 per cent gain in gross domestic product (GDP) in 2023. The property sector contributes to 26 per cent of its GDP, Citi Research said.
The sales performance of state-owned and private developers has been uneven since the start of the year. The former generated 40 per cent more in sales, while the latter saw a 24 per cent decline this year, according to Citi Research.
Private developers must rebuild trust and credibility to get their sales and restructurings back on track, its analyst Griffin Chan said, adding that it is “even more crucial than just local property easing.”
Last month, new home sales in tier-one and tier-two cities grew 22 per cent while sales in tier-three and tier-four cities tumbled by 55 per cent. Since November, local authorities have rolled out nearly 50 easing measures.
“We believe the policy pass-through could have been discounted if the loosening, namely reducing down payment, is in noncore areas or areas with no purchase restrictions,” Chan said. “But we would not expect any easing in core districts due to the upwards price pressure.”
But it is the core cities that matter now, said analysts from China Academy Index. Greater policy support for easing in tier-one and core tier-two cities is needed, they said, as restrictions are stricter despite the demand for improved housing. Non-core tier-two cities and smaller cities have not been able to drive sales despite policy relaxation.
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“There is still room for easing in core cities,” they said in a report. To curb speculation, China requires a higher down-payment ratio of as much as 80 per cent for second homes. This applies to homebuyers in core cities as long as they have a mortgage record for a home, whether it has been sold or not.
Such a policy needs optimising, they urged. For example, the city of Hangzhou has lowered the down-payment ratio as long as the buyer owns no other homes at the time.
They added that a more targeted approach, known as “one policy for one district”, would also help clear inventory in suburban areas in core cities.
“At this critical moment, to maintain economic growth, it is urgent for the central government and local authorities to rectify the unreasonable restrictions in core cities,” they said, adding that releasing demand will help “send confidence to the market”.
“Real estate no longer stimulates economic growth in the short term,” the China Academy Index analysts said. “Only through properly optimising regulatory policies to support the sector can we stabilise the economy,” they added, emphasising the stabilisation of market expectations and confidence to have a “soft landing”.
On Tuesday, state media China Economic Times ran a commentary that called for easing in tier-one cities but it was later removed, casting doubts on whether Beijing is willing to do anything in these core areas despite rumours of a stimulus package.
Aaron Costello, regional head for Asia at Cambridge Associates, does not expect any big moves but said the gesture would count.
“From a big-picture standpoint, it will be quite modest,” he said in an interview. “From a sentiment standpoint, it provides a signal to domestic investors that the government is serious about putting a floor under the real estate sector. Any stimulus or rate cuts may provide a catalyst for the Chinese economy to surprise to the upside.”
More from South China Morning Post:
- Chinese developer Languang forced to delist in Shanghai, with peers to follow as property-market crisis reverberates
- Vanke among three major Chinese property developers that are a step closer to selling shares under Beijing’s ‘three arrows’ rescue plan
- China home prices rise for the third straight month in April but momentum slows due to financing, demographic and oversupply hurdles
- China’s property-market recovery ‘uncertain’ as investment remains weak despite surge in first-quarter home sales
- Local housing authorities in Beijing propose ‘one district, one policy’ to spur property sales
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