China’s real-estate market is the big unknown for the recovery of the world’s second-largest economy this year.
(Bloomberg) — China’s real-estate market is the big unknown for the recovery of the world’s second-largest economy this year.
The property sector has yet to really signal that it is bottoming out, even as the government ramps up support for developers and lenders in a bid to stop a historic slump.
The uncertainty stands in contrast to expectations among economists that consumer spending will quickly rebound in the coming months now that Covid Zero has been abandoned, and as the latest wave of infections eases.
“Property-related indicators are worth monitoring the most,” said Ding Shuang, chief economist for Greater China and North Asia at Standard Chartered Plc. “Demand side recovery takes time as it’s pending changes in expectations. The government can lower financing costs and loosen purchase curbs, but at the end of the day sentiment is the key influencing buying decisions.”
Data this week showed a 27% contraction in housing sales in December, extending a streak of declines that began in July 2021. Investment in the sector continued to drop, as did home prices. And property investment overall fell 10% last year.
The value added by the property sector to the economy — a way to measure output — fell 5.1% last year from the prior year, data published Wednesday by the National Bureau of Statistics show. That reduced the sector’s share of overall gross domestic product to 6.1% in 2022 from 6.8% in 2021, according to Bloomberg calculations based on NBS figures.
NBS head Kang Yi said at a Tuesday briefing that the industry’s pullback on the economy this year is expected to be “no bigger” than last year.
Here’s a look at what the main indicators that gauge the strength of the property market have been doing:
Housing Sales
Demand for housing remained subdued, even though authorities have been ramping up their efforts since November to shore up the market. Home sales fell 26.7% by value in December from a year ago, according to Bloomberg calculations based on NBS figures. By floor space, sales tumbled 31.5%.
Policymakers took further steps this month to increase financing aid for developers to ensure project delivery and bolster confidence. They also allowed more cities to lower mortgage rates for first-home buyers to encourage purchases.
But Ding argued the persistent drops in home prices are the key factor holding buyers back from entering the market.
“Demand is unlikely to rebound when prices are still in a down-cycle,” he said. “Quite a lot of people with real demand are waiting.”
Land Purchases and New Housing Starts
Acquisition of land plummeted 51.3% by value in December from a year earlier, the third-worst month in 2022, while the floor space of new housing starts slid 43.7%, Bloomberg calculations based on NBS data show. The two indicators are closely monitored by analysts for assessing sentiment among developers.
The slump in land sales — a key source of local government income — has been one of the major causes of the unprecedented fiscal strain faced by those authorities.
Regulators are planning to relax restrictions on developer borrowing so that qualified companies will no longer be subject to loan caps and can use letter of guarantees from banks to pay land purchase deposits, Bloomberg reported earlier this month.
Property Financing
The year-on-year decline in domestic loans extended to developers slowed to 5.5% last month. That was the smallest fall since the stretch of declines started in March 2021, suggesting banks have been heeding government calls to increase financing for the sector.
Still, the total amount of funds received by the firms fell 28.7% as self-raising funds and deposits and payments from home buyers — the two biggest sources of funding — each sank by more than 30%.
The People’s Bank of China is studying additional structural tools to help stabilize the real estate market, central bank officials said last week. Financial regulators and the nation’s biggest bad-asset managers are also planning to offer as much as $24 billion of refinancing support to high-quality developers in the first quarter, Bloomberg has reported.
However, it may still be “early in the game” for favorable policies to trickle through the market and increase the willingness among households to buy real estate, said Louis Kuijs, Asia Pacific chief economist at S&P Global Ratings. The intensity of measures to boost demand has been “relatively modest” compared with the help granted to developers, he added.
“There is uncertainty every time when major shifts in policy or outlook happen,” Kuijs said. “Financial markets don’t like uncertainty and it hampers investment. I’m sure the same is true for households when they think about what to do.”
–With assistance from Lin Zhu.
(Updates with NBS breakdown figures for property in the sixth paragraph.)
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