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Fitch said the current size of China’s banking system limits the amount of support the central government could give to its biggest lenders. Photo: Reuters |
China on Friday announced some of its most sweeping measures yet to stabilise the crisis-hit property sector, allowing local governments to buy "some" apartments, relaxing mortgage rules and pledging further efforts to deliver unfinished homes.
Earlier in the day, fresh data showing the fastest drop in
new home prices in more than nine years highlighted the worsening state of an
industry which at its peak accounted for a fifth of economic activity and
remains a major drag on confidence and growth.
After waves of support measures over the past two years
failed to turn around the sector, Vice Premier He Lifeng told an online meeting
with other authorities that municipal governments can buy homes at
"reasonable" prices.
The homes would be used to provide affordable housing, He
said, without giving a timeline or a target for the purchases, nor detailing
how they would be funded. He also said local governments, already some $9
trillion in debt, can repurchase land sold to developers, and promised that
authorities will "fight hard" to complete stalled projects.
Separately, the central bank said it would further lower
mortgage interest rates and downpayment requirements.
China's CSI 300 Real Estate index jumped more than 4% on the
announcements.
"It's a positive and encouraging direction, that the
governments are stepping in to buy housing inventory," said Macquarie
chief China economist Larry Hu.
"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."
The move to allow local governments to buy homes is aimed at
bringing down a growing stock of unsold apartments.
Goldman Sachs estimates saleable housing inventory at 13.5
trillion yuan ($1.87 trillion) at the end of 2023 and because some of their
construction had not been finished, it would require 5 trillion yuan of capital
investment to complete them.
"The policies on clearing inventory are considered
quite powerful compared to all previous ones," said a senior executive at
a defaulted Shanghai-based developer, speaking on condition of anonymity due to
the sensitive nature of the topic.
"Psychologically, it'd let investors think the
government is 'paying the bill', and it is shifting the risks from property to
banks and local governments."
POOR DATA
Since the property market soured in 2021, triggering a
series of defaults among developers, China has lowered interest rates and down
payments, while most cities have eased or removed prior purchase restrictions.
A whitelist developer funding programme for project
completion is also struggling to get traction.
And a campaign flagged by Chinese authorities at a key
political meeting last month to encourage people to replace their old
apartments with new ones is off to a poor start as buying interest in
second-hand homes remains tepid.
The upbeat mood in the stock market contrasted with the
harsh reality on the ground, highlighted by poor housing data on Friday and a
Hong Kong court hearing of a petition seeking the liquidation of embattled
developer Country Garden 2007.
The hearing was adjourned for June 11. Another major
developer, China Evergrande Group, was ordered to be liquidated in January.
New home prices fell for a tenth consecutive month by 0.6%
month-on-month in April, which was worse than a 0.3% fall in March and the
fastest decline since November 2014.
A separate data set showed property investment in the first
four months of 2024 falling 9.8% from a year earlier.
Property sales by floor area in January-April logged a 20.2%
slide year-on-year, while new construction starts fell 24.6%. Funds raised by
developers were also down 24.9% year-on-year.
Of the 70 cities monitored for the housing data, 64 reported
declines in prices last month, more than the 57 cities that did so in March.
"The continued decline in property prices will
intensify the wait-and-see sentiment" among would-be buyers, said Guan
Xuerong, senior analyst at Zhuge Real Estate Data Research Centre.
"The industry adjustment is not yet over. It will take
time for the market to recover." - Reuters