On May 17, 2024, a real estate construction site in Wanxiang City, Huai’an City, Jiangsu Province, eastern China.
Future Publishing | Future Publishing | Getty Images
BEIJING – China’s drastic measures to expand support for real estate announced on Friday will take time to bear fruit, analysts said.
Despite the news, S&P still maintains its base case from the beginning of the month that China’s real estate market is likely still “looking for a bottom,” said Edward Chan, director of corporate ratings. He said this during the company’s webinar on Monday.
“The significance of last Friday’s policy developments is that the government is rolling out all of these policies at once, on the same day, all at once,” he said. “This shows that the government is serious and committed to stabilizing the real estate sector.”
But he noted that for real estate to stabilize significantly, homebuyer demand and confidence would need to improve after nearly three years of market weakness.
Hong Kong’s listed real estate stocks soared late last week, but were little changed on Monday, according to industry indexes from financial database Wind Information.
In addition to canceling the floor on mortgage rates nationwide, Chinese authorities on Friday lowered the minimum down payment from 20% to 15%.
Policymakers also provided 300 billion yuan ($42.25 billion) in loans for local state-owned enterprises to buy unsold completed apartments and turn them into affordable housing, increasing liquidity for developers. I tried to increase it.
We believe the Chinese government is heading in the right direction in ending the epic housing crisis.
Ting Lu
Nomura Chief China Economist
“While some of these measures are unprecedented (e.g. minimum down payment requirements have never been lower than 20%), they will begin to clear excess inventory and make new homes more affordable. “It’s still insufficient compared to our real estate team’s estimate that we need at least 1 trillion yuan of capital to reach a bottom,” said Hui, Goldman Sachs’ chief China economist.・Shang said in a memo on Sunday.
“We believe Beijing is heading in the right direction towards ending the massive housing crisis,” Nomura’s chief China economist Ting Lu said in a report on Monday.
“Beijing has already pivoted from building public housing to ensuring delivery of large numbers of existing homes to restore buyer confidence, an important step towards bringing the chaos under control. ing.”
“However, this is proving to be a difficult challenge and we believe the market needs to exercise greater patience as we await stricter measures,” he said.
Real estate investment fell at a sharper pace in April compared to March, with new commercial floor space sold in the first four months of this year down 20.2% year-on-year, according to official data released on Friday. The data also showed that retail sales growth in April was lower than expected.
The majority of household assets are in real estate, and uncertainty about future income weighs on consumer spending.
Rebuilding homebuyer confidence
S&P’s Chan said homebuyer confidence will depend in part on the economic outlook and whether they’ll receive apartments they’ve paid for but haven’t yet picked up.
Apartments in China are usually sold before construction. However, in recent years, delivery times have become longer due to real estate developers’ cash flow problems and other issues, with some buyers sometimes having to wait several years.
“Once home prices stabilize, I think there will be more homebuyers willing to enter the market,” Chan said. He said buying an apartment is a big investment for most people, so “we don’t want to see our capital dwindle.”
The official home price index for 70 cities released on Friday fell faster in April than in March, according to a Goldman Sachs analysis that looks at seasonally adjusted annual weighted averages.
Nomura’s Lu estimates that China’s home prices have fallen by an average of 25% to 30% from historic highs in 2020 and 2021.
He also estimated that there are about 20 million sold apartments that have yet to be completed, leaving a financing gap of about 3 trillion yuan ($414.58 billion).
Lu predicts that in the coming months, the Chinese government is likely to conduct a nationwide survey of housing projects and estimate how much money will be needed to complete construction and hand over the homes.
“In our view, rebuilding homebuyers’ confidence in the pre-sale system is a prerequisite for a true revival of China’s housing market,” he said.
