Residential buildings under construction in the Nanchuan area of Xining, Qinghai province, China.
Qilai Shen | Bloomberg | Getty Images
BEIJING – China’s property market, which makes up a large part of the country’s economy, needs more government support to prevent it from deteriorating, analysts said.
Existing home prices fell in October by the most since 2014, while outstanding property loans fell for the first time in history, Larry Hu, chief economist at Macquarie, said in a note on Friday.
This indicates increased drag on the demand side and the supply side.
Policy so far has focused on boosting demand. But the government has not “addressed the most important issue: credit risk related to developers,” according to a Macquarie report.
“Without a lender of last resort, a self-fulfilling crisis of confidence could easily occur as declining sales and rising default risks reinforce each other,” the report said. “Indeed, some large developers have recently seen their credit risks rise rapidly.”
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Beijing has sought to reduce real estate’s high reliance on debt to fuel growth, while bracing for a surge in home prices that has made buying an apartment in major cities prohibitively expensive for many young Chinese households.
UBS analysts estimated that real estate and related sectors now account for about 22% of China’s gross domestic product, down from about 25% levels seen in recent years.
Starting in November 2022, Chinese authorities launched a set of measures aimed at improving developers’ access to financing and reducing mortgage defaults.
Markets ‘too optimistic’?
Recent figures indicate that property sector woes are only getting worse.
The average price for existing homes across 70 major cities fell 0.6% in October from the previous month, compared with a 0.5% drop in September, with China’s biggest cities leading declines, Nomura analysts said in a report last week citing official data.
This is worrisome, as larger cities are expected to have more sustained demand for homes due to the availability of jobs.
“China’s property sector still has a bottom,” the report said. “Markets seem to have been a bit too optimistic about the property stimulus policies over the last couple of months.”
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More advanced signals
Politicians in recent days have sought to signal more support.
The People’s Bank of China announced late Friday that it had held a meeting with other financial regulators to allow lending to real estate that is “operating normally,” among other signals of support. The authorities also demanded to develop affordable housing, according to the reading.
“The meeting should help avoid an undesirable contraction of credit extension in the final two months of the year, as financial institutions try to time new loan agreements to the new year to achieve a strong start,” Citi analysts said in a report on Monday.
“LGFV’s continued emphasis on supporting real estate financing and debt resolution will continue to (help) prevent risks (of) escalation,” the report said. “As fragile growth continues to require an accommodative monetary environment, the rally is moving in the needed direction while more supports are still needed to bolster private sentiment.”
Shares of several major real estate companies closed higher on Monday, with developer Sunny rising 5.9% in Hong Kong trade.
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