Wed. Dec 6th, 2023
    China’s Property Market Requires Increased Government Support to Stabilize

    China’s property market, a vital component of the nation’s economy, is in need of additional government support to prevent further deterioration, according to analysts. In October, existing home prices dropped by the largest margin since 2014, and outstanding property loans experienced their first-ever decline, reported Larry Hu, Chief Economist at Macquarie. The decrease in both demand and supply highlight the pressing challenges faced by the market.

    Previously, efforts were concentrated on boosting demand, but the substantial issue of credit risk associated with developers remained unaddressed. Macquarie emphasized the lack of a lender of last resort, which could potentially result in a self-fulfilling confidence crisis. Sales decline and escalating default risks may reinforce each other, causing a significant impact on the market. Notably, the credit risks of some prominent developers have been rapidly escalating recently.

    To promote sustainable growth and tackle the surge in housing prices that hinder many young Chinese households’ ability to purchase homes, Beijing has aimed to reduce the property developers’ reliance on debt. UBS analysts estimated that real estate and related sectors currently comprise approximately 22% of China’s GDP, down from previous levels of 25%.

    In response to the alarming developments in the property sector, Chinese authorities have introduced various measures since November 2022. These measures primarily focus on enhancing developers’ access to financing and reducing mortgage rates.

    Recent data suggests that the property sector’s problems are worsening. In October, the average price of existing homes in 70 major cities dropped by 0.6%, compared to a 0.5% decrease in September. Notably, larger cities, which typically exhibit sustained demand due to job availability, witnessed significant declines. This indicates that the property sector has yet to reach its lowest point, contrary to initial market optimism surrounding the government’s stimulus policies.

    In light of these concerns, policymakers have sought to signal more support. The People’s Bank of China, along with other financial regulators, held a meeting to allow lending to real estate developers operating normally. The authorities also expressed the need for the development of affordable housing. By finding a balance between credit extension and risk prevention, policymakers aim to maintain stable growth while also bolstering private sentiment in the market.

    – How has China’s property market been performing recently?
    China’s property market has experienced a decline in existing home prices and outstanding property loans, indicating challenges on both the demand and supply side.
    – What measures have Chinese authorities implemented to support the property market?
    Authorities have focused on improving access to financing for developers and reducing mortgage rates to stimulate the market.
    – Are there concerns about the property market’s future?
    Yes, recent data suggests that the property sector has yet to reach its lowest point, and market optimism surrounding stimulus policies may have been premature.