China’s extensive efforts to support the property market will require patience

BEIJING — China’s sweeping moves on Friday to increase support for real estate will take time to show results, analysts said.

Despite the news, S&P is still sticking to its base case from earlier in the month that China’s property market is likely still “searching for a bottom,” Edward Chan, director, corporate ratings, said during the firm’s webinar on Monday.

“The significance of the policy rollout last Friday was that the government is rolling out all these policies at one go, at the same day, at one time,” he said. “This shows the government is serious, as well as dedicated, in stabilizing the property sector.”

But he pointed out that for real estate to see significant stabilization, homebuyers’ demand and confidence will need to improve after a market downturn of nearly three years.

Hong Kong-listed property stocks surged late last week, but were barely changed on Monday, according to an industry index from financial database Wind Information.

Chinese authorities on Friday lowered down payment minimums to as low as 15%, versus 20% previously, in addition to cancelling the floor on mortgage rates nationwide.

Policymakers also sought to boost developers’ liquidity by releasing 300 billion yuan ($42.25 billion) in financing for local state-owned enterprises to buy unsold, completed apartments in order to turn them into affordable housing.

“Although some of these measures are unprecedented (e.g., the minimum downpayment requirement was never below 20% previously), they are still insufficient compared to our property team’s estimates of at least RMB1tn funding needed to start digesting excess inventory and to allow new home prices to find a bottom within a year,” Goldman Sachs’ Chief China Economist Hui Shan said in a note Sunday.

“We believe Beijing is headed in the right direction with regard to ending the epic housing crisis,” Nomura’s Chief China Economist Ting Lu said in a report Monday.

“Beijing has already pivoted from building public housing to ensuring the delivery of numerous pre-sold homes to rebuild buyers’ confidence, marking a significant step towards cleaning up the big mess.”

“However, this is proving to be a daunting task, and we think markets need to exercise more patience when awaiting more draconian measures,” he said.

Official data released Friday showed real estate investment declined at a steeper pace in April versus March, with new commercial floor space sold for the first four months of the year down by 20.2% from a year ago. The data also showed retail sales grew less than expected in April.

The majority of household wealth is in property, while uncertainty about future income has weighed on consumer spending.

Homebuyers’ confidence depends partly on their economic outlook, and whether they can receive apartments they have paid for but have yet to receive, S&P’s Chan said.

Apartments in China are usually sold ahead of construction. But in recent years, financing troubles for property developers and other issues have prolonged delivery times — with some buyers waiting for several years.

“If there is stabilization in home price, I think there will be more homebuyers willing to enter the market,” Chan said. He noted that since buying an apartment is a major investment for most people, they “don’t want to see their capital shrinking.”

The official 70-city house price index released Friday fell more quickly in April than in March, according to Goldman Sachs analysis that looks at a seasonally adjusted, annualized weighted average.

Housing prices in China have dropped by 25% to 30% on average from their historical highs in 2020 and 2021, Nomura’s Lu estimates.

He also estimates there are still around 20 million pre-sold apartments that have yet to be completed, for a funding gap of around 3 trillion yuan ($414.58 billion).

Lu expects that in the next few months, Beijing will likely conduct a national survey of residential projects to estimate how much money is needed to finish construction and deliver homes.

“In our view, rebuilding homebuyers’ confidence in the presale system is the precondition for a true revival of China’s housing markets,” he said.