China’s property market, a significant part of the country’s economy, is facing challenges and requires further government support to prevent further deterioration, according to analysts. Existing home prices in October experienced the largest decline since 2014, while outstanding property loans fell for the first time in history. These indicators suggest that both demand and supply are being negatively impacted.
The government’s previous policies aimed at boosting demand have not adequately addressed the primary concern, which is the credit risk associated with developers. Without a lender of last resort, a self-fulfilled confidence crisis could occur as falling sales and rising default risks reinforce each other. Some large developers have already witnessed a rapid increase in credit risks.
To address issues in the property sector, the Chinese government has been working to reduce real estate developers’ reliance on debt for growth, as well as curb soaring home prices that have made homeownership unaffordable for many young Chinese households. Real estate and related sectors now account for approximately 22% of China’s GDP, down from previous years.
Recent figures indicate that the troubles in the property sector are worsening. The average price for existing homes in major cities declined by 0.6% in October, led by China’s largest cities. This is concerning as larger cities typically have sustained demand due to job availability. The property sector in China has yet to reach its lowest point, and there may have been excessive optimism regarding property stimulus policies in recent months.
In response to the challenges faced by the property market, policymakers are sending high-level signals of increased support. The People’s Bank of China, along with other financial regulators, recently held a meeting to allow lending to real estate developers that are operating normally. Furthermore, there is a focus on developing affordable housing. This meeting aims to avoid a contraction of credit extension in the final months of the year, ensuring a strong start for the new year.
While shares of major property companies closed higher following these signals, it is clear that sustained government support is still required to boost private sentiment and prevent risks from escalating. As the property market remains fragile amidst ongoing growth concerns, an accommodative monetary environment and continued support are crucial.