China’s drastic measures to support the real estate sector will take time

BEIJING – It will take some time for China’s sweeping measures to boost support for real estate to become apparent, analysts said.

Despite the news, S&P still sticks to its base case from earlier this month that China’s real estate market is likely still “looking for a bottom,” corporate ratings director Edward Chan said during the company’s webinar on Monday.

“The importance of the policy rollout last Friday was that the government rolled out all these policies at once, on the same day,” he said. “This shows that the government is serious and committed to stabilizing the real estate sector.”

But he pointed out that for real estate to experience significant stabilization, demand and homebuyer confidence will need to improve after a nearly three-year market decline.

Hong Kong-listed property shares rose sharply at the end of last week but were little changed on Monday, according to a sector index from financial database Wind Information.

Chinese authorities on Friday lowered down payment minimums to just 15%, down from 20% previously, and also lifted the floor on mortgage rates across the country.

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 to turn them into affordable housing.

“While some of these measures are unprecedented (the minimum down payment requirement has previously never been less than 20%), they are still insufficient compared to our real estate team’s estimates of at least RMB1 trillion financing needed to handle excess inventory and new housing prices make it possible to find a bottom within a year,” Hui Shan, chief economist at Goldman Sachs, said in a note on Sunday.

“We believe Beijing is moving in the right direction when it comes to ending the epic housing crisis,” Nomura’s chief Chinese economist Ting Lu said in a report on Monday.

“Beijing has already moved from building public housing to ensuring the delivery of scores of pre-sold homes to restore buyer confidence, marking an important step toward cleaning up the big mess.”

“However, this is proving to be a difficult task, and we believe markets will need to exercise more patience in anticipation of more draconian measures,” he said.

Official data released on Friday showed that property investment fell at a steeper pace in April than in March, with new commercial floor space sold in the first four months of the year. decreased by 20.2% from a year ago. The data also showed that retail sales grew less than expected in April.

The majority of household wealth consists of real estate, while uncertainty about future income has weighed on consumer spending.

Homebuyer confidence depends in part on their economic prospects, and whether they can get apartments they paid for but have yet to receive, S&P’s Chan said.

Apartments in China are usually sold before construction. But in recent years, financing issues for developers and other issues have extended delivery times, with some buyers having to wait several years.

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

The official home price index of 70 cities released Friday fell faster in April than in March, according to the Goldman Sachs analysis that looks at a seasonally adjusted, annualized weighted average.

House prices in China have fallen an average of 25% to 30% from their historic highs in 2020 and 2021, Nomura’s Lu estimates.

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

Lu expects that Beijing will likely conduct a national survey of housing projects in the coming months to estimate how much money is needed to complete construction and deliver homes.

“We believe that restoring homebuyers’ confidence in the pre-sale system is the prerequisite for a real revival of China’s housing markets,” he said.