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China’s ailing real estate sector, which accounts for about a quarter of the country’s economy, is showing signs of recovery after policymakers increased support for the industry since late 2021.
Recent data suggests that there is a small positive signal for the sector. According to figures of the National Bureau of Statistics released on Monday, new home prices in 70 Chinese cities barely fell with -0.04% last month. Compared with December, when prices dropped 0.28%. The four largest cities even saw prices climb 0.65% on average in January.
Meanwhile, China’s housing minister pledged to keep the real estate market stable this year. At a news conference Wang Menghui, head of the Ministry of Housing and Urban-Rural Development, said that “China will maintain the continuity and stability of policy measures while strengthening the precision and coordination of such measures.”
The pledge came after a series of regulations in the sector. Most recently, banks in two of China’s biggest metropolis, Shanghai and Guangzhou, have been urged to accelerate real-estate loans and ensure growth in both residential mortgages and loans to developers. According to a survey by Beike Research Institute, banks in roughly 90 cities decreased mortgage rates in February.
In January, the People’s Bank of China (PBOC) also announced the first mortgage rate drop in two years, stating that it intends to “to keep land prices, property prices and expectations stable”. The one-year loan prime rate (LPR), – benchmark for business and household loans – was slashed by 10 basis points to 3.7%, while the five-year LPR – benchmark for mortgage financing – was dropped 5 basis points to 4.60%, the lowest level in over two years.
The PBOC also eased a year-long lending cap, removing regulatory constraints on bank loans to fund low-cost rental projects. To stimulate home purchases, banks have also offered targeted discounts.
Housing sales remain low
Despite the easing measures and inital price stabilization, buyer sentiment in the property market remained subdued, adding pressure on builders’ cash flows.
Housing sales by top 100 developers continued to decline by 41% in January, after a 38% drop last December, data by China Real Estate Information Corp (CRIC) showed.
Where Evergrande’s recorded the steepest drop in sales at 95%, Longfor, Seazen, CIFI, Jinmao and Vanke’s reported drop in the range of 45-53% and Country Garden and Sino-Ocean had the smallest declines of 11% and 18%.
Analyst Li Tang who publishes on Smartkarma, stated that policy support is still inadequate for the sector. “The solid recovery of the real estate sector is still reliant on the demand side, which should take longer to recover as people wait for greater policy support and for the government to restore confidence in troubled developers.”
Funding is still tight for the indebted Chinese property developers. “There have been signs of a slight improvement in some funding channels since late 2021 after modest policy easing, such as normalising mortgage loans, a gradual recovery of development loans,” Fitch Ratings wrote in a recent report. “However, a sustained sales growth rebound is essential for lenders and debt capital market investors to regain confidence.”
Fitch expects a 10%-15% drop in new home sales in 2022, with a decline of 5% in the average selling price.
