China Tries Again to Prop Up Its Housing Market. It Doesn’t Go Far Enough.
Investors and homeowners are wondering if China’s policymakers will yet again fail to stabilize their economy and property market with insufficient stimulus measures or if the latest packages will finally help the country turn a corner.
Suffering badly are consumer sentiment and real estate, two areas entwined because housing prices have tumbled since 2021—including 10% since the start of the year—yet property is where most Chinese put their investments and savings, so the slump is causing a freeze on spending. New home prices in April fell for a tenth consecutive month by 0.6% month-on-month, the fastest decline since November 2014.
“We’re buying basically nothing but food,” said 58-year-old Zhong Weiyi, who owns an auto dealership just outside the sprawling western city of Chengdu. “If property prices start to go back up, then we’ll see,” Zhong said, adding that both he and his daughter own residences with much of the family’s life savings.
China recently unveiled what state media trumpeted as “historic” policies to rescue the housing sector, including wide-ranging measures to boost property prices, asking local governments to buy unsold homes from distressed developers, and easing rules on purchases.
Analysts say one issue that makes some of these steps likely to be as ineffective as previous measures is the fact that local governments are vastly in debt across the country.
Most experts were hopeful but highly skeptical. “It’s a positive and encouraging direction that the governments are stepping in to buy housing inventory,” Larry Hu, chief China economist at Macquarie, wrote in a note. “But in order to evaluate how powerful the impact will be, the key questions are who will be funding the purchase and how much they’ll fund in the end.”
Raymond Yeung, chief Greater China economist at ANZ, echoed the sentiment: “It’s a bold step. But how all the local governments will have the financial capability to fulfill the central mandate is an open question.”
The relaxation of mortgage rules will bring the minimum down payment ratios for first homes to 15% from 20%, and for second homes to 25% from 30%. Beijing also promised to allocate 300 billion yuan ($42 billion) of central bank funding for state-owned enterprises to buy up vacant apartments.
But even besides the plight of local governments, the magnitude of China’s crisis dwarfs Beijing’s central-level promises.
Many beleaguered developers have defaulted on at least $124.5 billion of dollar debt, and hundreds of millions of homeowners who once bet on a now-collapsed property bubble have lost much of their life savings. One former deputy head of the statistics bureau said the number of unfinished units that buyers have already paid for could number in the billions, and that there is no guarantee they will ever be finished.
Lower-tier cities have been hit the hardest, with vast numbers of unfinished units, for which there is no official figure but which blanket smaller localities across the country.
As of the most recent data, the time to clear housing inventories in lower-tier cities is now about 30 months, compared with eight months three years earlier, according to data provider Wind. The rate remains roughly half of that for higher-tier cities.
Research by Kenneth Rogoff, a Harvard University professor, and the IMF’s Yuanchen Yang show that a big part of the problem is that a disproportionate share of construction continues to be concentrated in third-tier cities—places with relatively modest GDPs and no more than a few million people, small by China standards.
Not every analyst is pessimistic, however. Shehzad Qazi, managing director of consultancy China Beige Book, said the logic of Beijing’s steps was sound, if perhaps underwhelming.
The latest support measures have one simple objective, he said: to put a floor under property.
“Importantly, they want to stabilize the housing market without reflating that bubble. Chinese policymakers believe these measures will arrest the free fall in property prices and that government intervention will also buoy household confidence in the sector,” he told Barron’s.
“It’s very likely that the various measures alongside, including mortgage rates, will help the property market find a cyclical bottom in 2024. If this happens, investors should also expect broader improvement in consumer sentiment,” he said.
Christopher Beddor, deputy China research director at Gavekal Dragonomics, sees the moves as more of an evolution by the government in the right direction, after years of putting tape on a gaping wound.
The measures aren’t the big bailout that many had been hoping for, and might not even be enough to stabilize the property sector, he cautioned. “They do mark an important evolution in the government’s handling of the crisis, because they focus much more on fixing the fundamental problem of struggling real estate developers, rather than just boosting home buyer sentiment,” he told Barron’s. “These policies aren’t the solution to the property crisis, but the probability is rising that an actual solution will eventually arrive.”
