China’s Real Estate Support Measures Will Take Time to Show Results, Say Analysts

As of the latest news, China has made significant moves to bolster its real estate sector, although analysts caution that the effects may not be immediately evident. S&P maintains its earlier assessment that the Chinese property market is still in a state of flux, signaling that the impact of the new measures may take time to materialize.

During a recent webinar, Edward Chan, director of corporate ratings at S&P, emphasized the importance of the government's comprehensive policy rollout on a single day. He noted that this demonstrates the government's seriousness and commitment to stabilizing the property sector. However, he also highlighted the need for improvement in homebuyers' demand and confidence for significant stabilization to occur, especially after a nearly three-year market downturn.

Market Response and Policy Changes

Despite the surge in Hong Kong-listed property stocks late last week, there was little change in their performance on Monday, indicating a degree of caution among investors. Chinese authorities made pivotal policy changes, including lowering the minimum down payment to 15% and releasing 300 billion yuan in financing for local state-owned enterprises to purchase unsold, completed apartments for conversion into affordable housing. While these measures are unprecedented, they may still fall short compared to the estimations of funding needed to address excess inventory, according to Goldman Sachs' Chief China Economist Hui Shan.

Economic Impact and Market Outlook

Notably, real estate investment experienced a steeper decline in April compared to March, with retail sales also growing less than expected. The slowdown in property investment and consumer spending can be attributed to the fact that a significant portion of household wealth is tied to property, while economic uncertainty has affected confidence and purchasing power. The lengthy delivery times for pre-sold apartments have also contributed to buyer hesitation, with some individuals waiting for several years to receive their properties.

The official 70-city house price index indicates a rapid decline in housing prices, as reported by Goldman Sachs. Nomura's Chief China Economist Ting Lu estimates that housing prices have dropped by 25% to 30% on average from their peak in 2020 and 2021. Moreover, around 20 million pre-sold apartments are yet to be completed, resulting in a substantial funding gap. Lu anticipates that a national survey will be conducted to assess the financial requirements for completing construction and delivering homes, emphasizing that rebuilding homebuyers' confidence in the presale system is crucial for the revival of China's housing markets.