Daily Management Review

China's Efforts To Support Property Market Are Disappointing


China's Efforts To Support Property Market Are Disappointing
On Monday, investors expressed concern that China's "historic" efforts to stabilise its property market were insufficient to promote a long-term increase in demand and trust, which caused shares of Chinese developers to tremble.
After rising over 18% so far this month, Hong Kong's Hang Seng Mainland Properties Index finished down 0.7%. This was following the Politburo's announcement on April 30 that it would work together to reduce the number of available homes.
China Vanke, the beleaguered state-backed developer, decreased 0.2% after rising as high as 6.4% during the morning trading session. R&F Properties, Kaisa Group, KWG Group, and Shimao Group all had declines of more than 10%.
China announced plans on Friday to loosen mortgage regulations and allow funding of up to 1 trillion yuan ($138 billion); local governments are expected to purchase "some" of the flats.
The central bank said that as part of those measures, state-owned companies (SOEs) would be authorised to acquire unsold and completed homes at "reasonable prices" in order to provide affordable housing through the establishment of a 300 billion yuan ($41.49 billion) loan facility.
The central bank anticipates that bank funding of 500 billion yuan will arise from the lending plan.
The statement on Friday after two years of waves of policy assistance measures that fell short of reviving the industry, which at its height contributed 25% of the country's GDP and continues to be a significant burden on the second-biggest economy in the world.
A housing ministry document called the new rules a "historic moment" for the sector, although many observers of China were more reserved in their appraisal.
Although analysts praised the central government's move to become a buyer, they pointed out that the amount of funding offered is insignificant compared to the projected billions of yuan worth of housing inventory that exists nationwide.
According to the most recent official figures, there were 391 million square metres (4.2 billion square feet) of new homes available for purchase between January and April, up 24% from the previous year. This is equal to 6.6 Manhattans, and Tianfeng Securities predicts that it will cost almost $1 trillion to buy the whole stock.
Karl Choi, the director of Bank of America's Greater China property research, pointed out that social housing programmes are only required in larger cities and estimated that the $500 billion in funds could be used to buy up to 15% of the inventory at a significant discount in tier-2 cities.
According to Macquarie analysts, Beijing may have said in the past that the government's strategic aim was to clear the inventory in 18 months as opposed to the present 28-month period.
They predicted that it will cost 2 trillion yuan to achieve the policy aim.
According to a research by the bank's senior China economist, Larry Hu, "given its limited size and the various challenges in execution, it alone is unlikely to solve the problem." "But it’s encouraging that policymakers are moving in this direction after failures in the previous years."
Analysts contrasted the most recent 300 billion yuan credit facility with a different 100 billion yuan facility that was launched in January 2023 for the purpose of buying inventory for eight pilot towns to provide affordable rental homes. According to official figures, by January of this year, just around 2 billion yuan had been taken out, underscoring the dearth of market involvement and incentives.
Given their current $9 trillion debt load, local governments may be unwilling to take on more social housing projects that provide low returns, and banks may be reluctant to lend to companies that may wind up losing money.
The tenure of this loan, which is intended to be no more than five years, is too short for the payback time for a rental housing project, according to Bank of America's Choi. This might worry commercial banks and SOEs.
If the government starts a comprehensive programme to cut inventory, Goldman Sachs said it will take nine months for China's real estate prices to stabilise.
"Much depends on execution," the U.S. investment bank said. "Despite policymakers signalling a more supportive stance, the effectiveness of any new measures will hinge on how quickly and easily they can be implemented."
Restoring trust among buyers is still crucial for a revival in real estate, according to experts.
Li Gen, the chairman of Beijing G Capital Private Fund Management Centre LLP, stated that given the state of the market, not many organisations would be spurred by Friday actions.
"The demand for property is weak with many people concerned about jobs and incomes in future."