MNI: A Slow Road Ahead For China Property Rebound

China’s embattled property market will see a gradual recovery in the second half of this year, as pledges from top policymakers to local authorities aim for a quick turnaround once Covid-19 cases drop, according to analysts citing the latest real estate data.

Property investment in the first four months unexpectedly fell 2.7% y/y to the lowest since April 2020, reversing a 0.7% gain in Q1, data released by the National Bureau of Statistics showed. A drop in real estate investment is rare in China and will require a combination of looser credit for buyers, and developer financing, wrote Yan Yuejin, director of E-house China Research and Development Institution on his WeChat account.

The People’s Bank of China last week unexpectedly cut its five-year Loan Prime Rate, which many lenders base their mortgage rates on, by 15 basis points to 4.45%. Earlier this month, the central bank already lowered the floor of mortgage interest rates for first-time homebuyers to 20 bps below the five-year LPR, which means the minimum mortgage rate now could drop to as low as 4.25%, the lowest in a decade. SEE: MNI STATE OF PLAY: PBOC 5-Year LPR Cut To Boost Property Demand.

It is reported that banks in Tianjin and Zhengzhou city have immediately moved to follow the minimum rate, while some banks in Beijing and Shanghai have lowered their first-home mortgage rate by 15 bps to 5% and 4.95%, respectively. Data by Beike Research Institute shows that the average first-home loan interest rate in 103 key cities was 5.17% in April.

SLUGGISH SALES

So far this year, about 15 cities have lowered down payment ratios, and over 30 cities have relaxed limits on home purchases and sales as well as loan terms, wrote Wu Ge, chief economist of Changjiang Securities in his May 15 WeChat blog post. But commercial housing sold nationwide fell 20.9% y/y in the first four months, following a 13.8% decline in Q1.

Uncertainties brought by Covid-19 curbs have significantly made consumers more prone to put money in savings, now at a record high, said Wu, noting that a recent survey by China Real Estate Information Corp shows the proportion of people postponing home purchase plans to one year later has surged to 66% from 22% in February.

Wu expects home sales to decline 12% y/y for the year, with the next positive monthly reading not until September. Headline property investment is likely to fall 4% in 2022.

While Li Yujia, chief researcher at Guangdong Urban & Rural Planning and Design Institute, believes the bottom of home prices and sales has begun to appear, expecting a full rebound in H2 as the economic and social cycle gets back on track in June with stimulus on housing demand taking effect.

STRUGGLING DEVELOPERS

But developers are still facing financing difficulties amid high risk aversion. In the first four months of the year, land taken by developers fell to a historical low of 46.5% y/y, while their funds in place fell by 23.6% y/y.

Several big developers including Country Garden and Longfor were selected by regulators to issue yuan bonds with credit enhancement tools such as credit default swaps and credit risk mitigation warrants, aiming to help private developers restore financing on the open market. SEE: MNI: China Still Risks Wave Of Developer Default-Advisors

In the first four months, developers have issued a total CNY153.2 billion bonds, down 37.7% y/y, and about 85% of the issuers are state-owned developers, according to data by China Index Academy. Private developers made eight bond issues totaling CNY9.4 billion.