China’s ‘piecemeal’ stimulus plan stirs hope in property market

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For Xue, a real estate broker in Beijing, transaction volumes have rebounded in the past week following government measures aimed at propping up China’s faltering real estate sector and the broader economy.

“The inventory of available properties is shrinking every day,” said Xue, who asked not to be named, adding there were signs that some homeowners wanted to raise prices again after a long period of falling prices.

Economists said Xue’s rosy forecast was not universally endorsed — other agents reported little change in the market — but high-frequency property market data over the past week showed increased buyer interest in China’s largest city.

China’s real estate sector typically accounts for more than a quarter of economic activity in the world’s second-largest economy, but its shaky conditions prompted Beijing last week to roll out its most comprehensive move in years to revive the debt-plagued sector demand.

The steps include easing mortgage down payment and interest rate requirements, along with broader measures aimed at boosting confidence, targeting weakness in Chinese stocks, consumer confidence and the yuan.

Taken together, the announcements represent policymakers’ firmest appreciation yet of the scale of the challenge facing China’s faltering economy. But economists said investors would wait for more evidence of a tangible impact on domestic demand before venturing back into the market.

“These are the strongest measures yet against the housing market, so it really shows that Beijing is taking action,” said Frederic Neumann, chief Asia economist at HSBC. It remains to be seen how much traction they can gain.”

China’s economy is starting to show signs that its post-pandemic recovery lost steam in the second quarter, with a slump in property sales adding to declines in exports and industrial production.

The ruling Communist Party’s Politburo meeting in July failed to come up with even a modest stimulus package to boost the recovery, which they conceded was only “tortuous” progress, let alone the expected “bazooka”, markets said. Sentiment continues to weaken.

More bad news hit the market in August, including the failure of Country Garden, China’s largest private property developer by sales, to pay interest; huge losses from rival Evergrande, whose default in 2021 has rippled across the industry; and financial conglomerate Zhongzhi’s liquidity crisis.

Investor distrust was further fueled by the government’s abrupt withdrawal of data on youth unemployment, which had reached record levels, while consumer prices fell. Factory activity fell for the fifth straight month in August.

Last week, however, the government stepped up its response. In addition to lowering minimum mortgage down payments and allowing existing mortgage rates to be cut, it also increased personal income tax allowances for children’s education and care for infants and the elderly. In stock markets, policymakers slashed transaction fees and took other steps.

“Reinflationary policies are accelerating at a pace not seen in recent years,” Morgan Stanley economist Robin Xing said in a research note. The measures were the strongest response since 2018, when China’s economy slowed due to an intensifying Sino-U.S. trade war, he added.

Shan Hui, chief China economist at Goldman Sachs, said a rough calculation of the government’s fiscal, monetary and property measures suggested they could boost gross domestic product (GDP) growth by about 60 basis points.

“Even without the ‘bazooka’, if you take enough of these piecemeal easing measures, there is still a chance to stabilize the economy and have an impact on growth,” Shan said.

But she warned: “Investors are not yet fully convinced; people are looking at the real estate transaction data to see if it actually translates into stronger sales and activity.”

Much will depend on buyers’ price expectations, analysts said. Due to the subdued economy and oversupply in the market, speculative activities are suppressed, coupled with China’s already high home ownership rate and weak population outlook, most of the demand will come from upgrading or further urbanization.

“Price expectations may be a factor deterring buyers,” Shan said.

Accelerating the process of urbanization depends on further deepening reform accountChina’s tightly controlled household registration system entitles certain urban residents to urban services.While some cities are relaxing accountthe process is complex and highly political.

Neumann raised the possibility of future reductions in mortgage rates and purchase incentives, such as tax cuts for buyers, adding that the authorities would fine-tune these measures. “If they’re not getting attention, you’re doing more,” he said.

“It’s very much about signaling to potential buyers that, in fact, the government is going to do whatever it takes to stabilize house prices.”

Property stocks rallied this week after Country Garden avoided a technical default by paying interest on dollar bonds.

But even if the housing market stabilizes and cyclical growth returns, the government will need to undertake a series of reforms to replace the growth engine provided by housing and put the economy on a more sustainable trajectory.

Global banks have cut their 2023 economic growth forecasts to below the government’s official target of 5%, itself the lowest level in decades.

Reforms are urgently needed in politically tricky areas, such as the need to increase social welfare spending to encourage consumption and restructuring indebted local governments and their financial instruments.

Meanwhile, real estate markets in cities like Beijing remain sluggish. In April, Ye put his parents’ house on the market in a remote area of the capital. But five months later, with one price cut, it still hasn’t sold.

“If it doesn’t sell, that’s it, I won’t lower the price,” he said.

Additional reporting by Andy Lin in London

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