China's wide-ranging measures to support the real estate sector will take time to show results

BEIJING - It will take time to see results from the sweeping measures China took on Friday to bolster support for the real estate market, analysts said.

 

Despite the news, S&P is still sticking to its baseline forecast from earlier this month that China's real estate market is likely still "looking for a bottom," Edward Chan, director of corporate ratings, said during the company's webinar on Monday.

 

"The significance of the policy rollout last Friday was that the government rolled out all these measures at once, on the same day, at the same time," he said. "It shows that the government is serious about stabilizing the real estate sector."

 

But he noted that for the real estate sector to stabilize significantly, demand and homebuyer confidence must improve after nearly three years of market downturn.

 

Hong Kong-listed shares of real estate companies rose late last week but were little changed on Monday, according to a sector index from financial database Wind Information.

 

On Friday, Chinese authorities lowered the minimum down payment to 15 percent from 20 percent previously and eliminated minimum mortgage rates nationwide.

 

Policymakers also tried to boost developers' liquidity by allocating 300 billion yuan ($42.25 billion) in funding to local state-owned enterprises to buy unsold finished apartments to turn them into affordable housing.

 

"While some of these measures are unprecedented (such as requiring a minimum down payment never before below 20 percent), they are still insufficient compared to our real estate group's estimate that at least 1 million yuan needs to be allocated to start digesting excess inventory and allow new home prices to bottom out within a year," Goldman Sachs chief China economist Hui Shan said in a note on Sunday.

 

"We believe Beijing is moving in the right direction with respect to ending the epic housing crisis," Ting Lu, Nomura's chief China economist, said in a report Monday.

 

"Beijing has already shifted from building public housing to ensuring the delivery of a large number of pre-sold homes to restore buyer confidence, a significant step towards clearing the big mess."

 

"However, this is proving challenging and we believe markets should be more patient as they await more draconian measures," he said.

 

Official data released Friday showed that real estate investment declined at a faster pace in April compared with March, with sales of new commercial space in the first four months of the year down 20.2 percent from a year earlier. The data also showed that retail sales rose less than expected in April.

 

Much of household wealth is in home ownership, while uncertainty about future income has put pressure on consumer spending.

 

Homebuyers' confidence depends in part on their economic outlook and whether they can get apartments they've already paid for but haven't yet gotten, said S&P's Chan.

 

Apartments in China are usually sold before construction begins. But in recent years, developers' financing problems and other issues have delayed the delivery of homes - some buyers have waited several years.

 

"If housing prices stabilize, I think there will be more buyers willing to enter the market," Chan said. He noted that since buying an apartment is a major investment for most people, they "don't want their capital to decrease."

 

The official home price index for 70 cities released Friday fell faster in April than in March, according to a Goldman Sachs analysis that looks at a seasonally adjusted, annualized weighted average.

 

Nomura's Lu estimates that home prices in China have fallen an average of 25% to 30% from their all-time highs in 2020 and 2021.

 

He also believes there are still about 20 million pre-sold apartments in the country that have yet to be completed, creating a financing gap of about 3 trillion yuan ($414.58 billion).

 

Lu expects Beijing is likely to conduct a national survey of housing projects in the next few months to assess how much money is needed to complete and deliver homes.

 

"In our view, restoring home buyers' confidence in the pre-sale system is a prerequisite for a genuine revival of China's housing markets," he said.