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

BEIJING — China’s decisive steps on Friday to boost real estate support will take time to bear fruit, analysts said.

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

“The significance of the policy implementation last Friday was that the government is implementing all these policies at the same time, on the same day and at the same time,” he said. “This shows that the government is serious and committed to stabilizing the property sector.”

But he noted that for real estate to stabilize significantly, demand and homebuyer confidence would need to improve after nearly three years of market decline.

Shares of Hong Kong-listed companies rose late last week but were little changed on Monday, according to the Wind Information financial database industry index.

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

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

“While some of these measures are unprecedented (for example, the minimum down payment has never been below 20% before), they are still insufficient compared to our real estate team’s estimates, which require at least RMB 1 trillion in funding to begin to digest excess inventory and allow prices for new homes to rise. find a bottom within a year,” Hui Shan, chief China economist at Goldman Sachs, said on Sunday.

“We believe Beijing is moving in the right direction in terms of ending its epic housing crisis,” Ting Lu, Nomura’s chief China economist, said Monday.

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

“However, this is proving challenging and we believe markets need to be more patient as they wait for more draconian measures,” he said.

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

Most household wealth is owned, and uncertainty about future income is putting pressure on consumer spending.

Homebuyers’ confidence depends in part on their economic outlook and whether they can get apartments they paid for but haven’t yet received, S&P’s Chan said.

Apartments in China are usually sold before construction begins. But in recent years, developer financing and other problems have led to longer delivery times, with some buyers waiting several years.

“If there is a stabilization of home prices, I think there will be more home buyers willing to enter the market,” Chan said. He noted that since buying an apartment is a large investment for most people, they “don’t want their equity to go down.”

The official 70-city home price index released Friday fell faster in April than in March, according to a Goldman Sachs analysis that takes into account a seasonally adjusted annual weighted average.

Nomura’s Lu estimates that home prices in China have fallen by an average of 25% to 30% from all-time highs in 2020 and 2021.

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

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

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