MNI: China Home Sale Volumes To Rebound, Prices Remain Weak

Beijing and Shanghai’s latest round of house-market relaxations may help boost volumes and revive the ailing property sector over the next few months, but price weakness will likely persist as over-leveraged developers offer discounts to boost sales, policy advisors told MNI.

The top two tier-one cities rolled out a fresh round of housing stimulus last week, which included cuts to down-payment ratios and mortgage rates, relaxation of non-luxury house definitions and loan repayment deadline extensions. All four tier-one cities have now abandoned most restrictive policies except for caps that limit home purchases per residents.

The moves followed continuous house price declines across major cities and increased calls from top policymakers to curb risk, said Li Yujia, chief research fellow at the Guangdong Urban & Rural Planning and Design Institute.

New home prices in 70 major cities, excluding state-subsidised housing, declined for the fifth consecutive month by 0.4% m/m in November, while established home prices fell for the sixth straight month by 0.8% m/m. Li noted estabished houses in the four tier-one cities led the monthly decline, down 1.4%, marking the largest decrease on record.

Shanghai and Beijing's relaxations will lift market sentiment for at least the next two months, said Xie Yifeng, dean at the China Urban Real Estate Research Institute and a Ministry of Housing and Urban-Rural Development consultant.

Xie expects sales to rebound by March after the year-end off-season passes and banks gradually implement new measures. The relaxations, which include a 45-85bp cut in mortgage rates alongside cutting down-payments to as low as 30% for first-homes and 40% for second purchases, will encourage owners – with the ability – to upgrade, said Xie. Expanding the scope of non-luxury houses will also allow more buyers to qualify for lower mortgage thresholds and taxes, he added.

WEAK HOME PRICES

However, home prices may remain weak despite increased transactions, as developers faced with debt repayments use discounts to accelerate sales over the coming months, Xie continued.

About CNY688.6 billion of real-estate company issued domestic and foreign bonds will mature in 2024, down from 2023's CNY958 billion, according to a report by BOC International.

Xie believes developers will continue to face financing difficulties despite measures to press banks to increase lending, including a rumored "whitelist" of 50 developers eligible for funding and the reported three new requirements for bank loans to real-estate companies and homebuyers. (See: MNI: China Likely To Ease Developer Borrowing Restrictions)

Banks under tightened supervision are reluctant to increase risk exposure or add bad loans and they will carefully examine whether developers’ short-term cash flow can cover their short-term debts, evaluate payments of their housing projects, and require high-quality assets as collateral or guarantees before lending, said Xie. Very few developers can meet all these conditions, he noted.

“Home prices may keep falling moderately in 2024, with some structural increases in core cities such as transactions of luxury houses pushing up average prices,” he said.

A report by the Shanghai-based E-house China Research and Development Institution showed the average price for purchasing a house in the four first-tier cities is CNY4.28 million. The ratio of housing prices to urban household annual income in first-tier cities was 30.3 as of H1 2023, a slight 0.3% decrease from 2022 but still beyond the 3-6 times range generally considered reasonable, according to a report by Zhuge Real Estate Data Research Center.