- Analysts say China’s real estate market, which accounts for a significant portion of the country’s economy, needs more government support to prevent further deterioration.
- Existing home prices fell in October by the most since 2014, while outstanding home loans fell for the first time in history, Larry Hu, chief economist at Macquarie, said in a note.
- Late Friday, the People’s Bank of China said, among other things, that it had held a meeting with other financial regulators to allow lending to real estate developers operating normally.
Apartment blocks under construction in the Nanchuan area of Xining, Qinghai Province, China.
Qilai Shen | 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 say.
Existing home prices fell in October by the most since 2014, while outstanding home loans fell for the first time in history, Larry Hu, chief economist at Macquarie, said in a note on Friday.
This indicates increased stress on both the demand and supply sides.
So far, policy has focused on stimulating demand. However, according to a Macquarie report, the government has “failed to address the most important issue: credit risk associated with developers.”
“Without a lender of last resort, a self-fulfilling crisis of confidence could easily arise as falling sales and rising default risks reinforce each other,” the report said. “In fact, some large developers have seen a rapid increase in credit risk recently.”
Beijing has sought to reduce property developers’ heavy reliance on debt to fuel growth while curbing the rise in property prices that have made buying an apartment in major cities unaffordable for many young Chinese households.
UBS analysts estimate that real estate and related sectors now account for about 22% of China’s gross domestic product, compared with around 25% in recent years.
Since November 2022, Chinese authorities have taken a number of measures aimed at improving developers’ access to financing and reducing mortgage rates.
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Recent figures suggest that problems in the real estate sector 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% decline in September, with China’s largest cities leading the declines, Nomura analysts said in a report last week citing official data.
This is worrying as larger cities are expected to see more sustained demand for housing due to the availability of jobs.
“China’s real estate sector has not yet bottomed out,” the report said. “Markets appear to have been a bit too optimistic about housing stimulus measures over the last two months.”
Policymakers have moved in recent days to signal more support.
The People’s Bank of China said late Friday that it had held a meeting with other financial regulators to, among other things, allow lending to real estate developers “operating normally.” According to the report, authorities also called for the development of affordable housing.
“The meeting should help avoid an unwanted decline in lending in the final two months of the year as financial institutions seek to time new loan agreements in the new year to get off to a good start,” Citi analysts said in a report from Monday.
“The focus will continue to be on supporting real estate financing and LGFV debt solutions [to help] Prevent risks [from] “Escalated,” the report said. “As fragile growth continues to require an accommodative monetary environment, the meeting moves in the necessary direction, while more support is still needed to boost private sentiment.”
Shares of several major real estate companies closed higher on Monday, with developer Sunac rising 5.9% in Hong Kong trading.