- Analysts said China’s real estate market, which accounts for a significant portion of the country’s economy, needed further government support to prevent further deterioration.
- Macquarie chief economist Larry Hu said in a note that existing home prices in October fell by the most since 2014, while real estate loan balances fell for the first time in history.
- Late on Friday, the People’s Bank of China said it had met with other financial regulators and offered signs of support, including allowing loans to normally operating property developers.
A housing complex under construction in the Nanchuan area of Xining City, Qinghai Province, China.
Shen Qilai | Shen Qilai Bloomberg | Getty Images
BEIJING—China’s real estate market, which accounts for a significant portion of the country’s economy, needs more government support to prevent further deterioration, analysts said.
Macquarie chief economist Larry Hu said in a note on Friday that existing home prices in October fell by the most since 2014 and real estate loan balances fell for the first time in history.
This indicates increasing resistance on both the demand and supply sides.
Policies to date have focused on expanding demand. However, the Macquarie report said the government was “failing to address the most important issue of credit risk associated with developers”.
“Without a lender of last resort, declining sales and rising default risk could easily reinforce each other, leading to a self-fulfilling confidence crisis,” the report said. “In fact, some large developers have recently seen their credit risk rise rapidly.”
The Chinese government is relying on real estate developers’ high debt to drive growth while curbing soaring housing prices that have made buying apartments in major cities prohibitive for many young Chinese households. trying to lower the
Analysts at UBS estimate that real estate and related sectors currently account for about 22% of China’s gross domestic product, down from about 25% in recent years.
Since November 2022, Chinese authorities have rolled out a number of measures aimed at improving financing access for developers and lowering mortgage rates.
Recent statistics show that the real estate sector’s problems are only getting worse.
The average price of existing homes in 70 major cities fell 0.6% month-on-month in October, compared with a 0.5% drop in September, with China’s largest cities leading the decline, Nomura analysts said in a report last week. He cited official data.
This is a concern because housing demand is expected to be more sustained in large cities due to job security.
“China’s real estate sector has not bottomed out yet,” the report said. “The market seems to have been a bit too optimistic about the real estate stimulus package in the past two months.”
Policymakers have sought to show further support in recent days.
The People’s Bank of China announced late Friday. held a meeting It is working with other financial regulators to signal support, including by allowing loans to “normally operating” property developers. Officials also called for the development of affordable housing, according to the statement.
“The meeting is expected to avoid an undesirable contraction in credit availability in the final two months of the year, as financial institutions look to get off to a strong start by aligning the timing of new loan commitments with the new year,” Citi analysts said in a Monday note. This should help avoid this.”
“We will continue to focus on supporting real estate financing and LGFV debt resolution.” [to help] prevent risks [from] “While further support remains needed to boost private sentiment as fragile growth continues to call for accommodative financial conditions, the meeting is moving in the necessary direction,” the report said. .
Shares in several major property companies closed higher on Monday, with developer Sunac rising 5.9% in Hong Kong trading.
