China’s real estate problems are getting worse and need Beijing’s support
- China’s real estate market, which makes up a large part of the country’s economy, needs more government support to prevent it from deteriorating further, analysts said.
- Existing home prices fell in October by the most since 2014, while outstanding mortgages fell for the first time in history, Macquarie chief economist Larry Ho said in a note.
- Late Friday, the People’s Bank of China announced it had held a meeting with other financial regulators to allow lending to property developers operating normally, among other signs of support.
Apartment complexes under construction in Nanchuan District in Xining, Qinghai Province, China.
Chilai Shen | Bloomberg | Getty Images
BEIJING – China’s real estate market, which makes up a large part of the country’s economy, needs more government support to prevent it from deteriorating further, analysts said.
Existing home prices fell in October by the most since 2014, while outstanding mortgages fell for the first time in history, Macquarie chief economist Larry Ho said in a note on Friday.
This indicates increasing pressures on both the demand and supply sides.
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 the Macquarie report.
“Without a lender of last resort, a self-confidence crisis could easily occur, as falling sales and rising default risks reinforce each other,” the report said. “In fact, some large developers have recently seen their credit risk rise rapidly.”
Beijing has sought to reduce property developers’ heavy reliance on debt to fuel growth, while working to curb the rise in housing prices that have made buying an apartment in major cities unaffordable for many young Chinese families.
UBS analysts estimate that real estate and related sectors now account for about 22% of China’s GDP, down from levels of about 25% seen in recent years.
Since November 2022, Chinese authorities have launched a range of measures aimed at improving developers’ access to financing and lowering mortgage rates.
Recent figures indicate that the problems of the real estate sector are getting worse.
Analysts at Nomura Bank said in a report last week, citing official data, that the average price of existing homes in 70 major cities fell by 0.6% in October compared to the previous month, compared to a 0.5% decline in September, with the largest Chinese cities leading the declines.
This is concerning because larger cities are expected to have a more sustained demand for homes due to the availability of jobs.
“China’s real estate sector has not yet reached the bottom,” the report said. “It appears that markets have been a bit optimistic about real estate stimulus policies over the past couple of months.”
Policymakers in the past few days have made an effort 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 property developers who are “operating normally,” among other signs of support. The authorities also called for the development of affordable housing, according to the statement.
“The meeting should help avoid an unwanted contraction in credit extension in the last two months of the year, as financial institutions try to time new loan deals for the new year in order to engineer a strong start,” Citi analysts said in a report on Monday.
“There will be a continued focus on real estate financing support and LGFV debt settlement (to help) prevent risk escalation,” the report said. Direction is needed while further support is still needed to boost private sector sentiment.
Shares of several major real estate companies closed higher on Monday, with developer Sunac rising 5.9% in Hong Kong trading.
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