MNI: China Home Sales Likely To Languish Despite New Stimulus

MNI (BEIJING) - China’s property market will remain weak over the September-October traditional peak season as new stimulus measures take time to work through the economy, while consumer confidence continues to struggle, advisors and analysts told MNI. 

Some first- and stronger second-tier cities are expected to reduce down payments for second homes soon, following the central bank’s move this week to ease the nationwide minimum deposit to 15% in line with first homebuyers, marking the lowest level since 2000, said Xie Yifeng, dean at the China Urban Real Estate Research Institute and a housing ministry consultant. 

While cities ultimately decide the final deposit ratio, those with strong purchasing power like Shanghai will be motivated to move first given that over 60% of its supply are high-end properties with room for value preservation and appreciation, supported by stable income growth and population inflow, Xie argued.

Beijing is also expected to scrap classification for ordinary and non-ordinary – or luxury – residential homes, to reduce transaction taxes on property above 144 square meters and encourage demand for those seeking an upgrade, he continued.

WEAK EXPECTATION

Xie expects mediocre sales performance in October, following weaker-than-expected transactions in September. A rebound will depend on how fast cities can implement the new measures and whether sales prices can be lowered enough to match buyer expectations, he added, noting developers unwilling to operate at a loss slashed about 30% of supply this month, which supported prices.

The housing market’s most significant challenges remain weak consumer expectations amid falling incomes and home prices, lingering default risk among developers and project delivery uncertainty, Xie added. 

“It will be hard for sentiment to reverse before supply and demand rebalances and the real economy rebounds,” he added.

The PBOC’s residents' income sentiment index fell by 1.3% q/q in Q2, while the income confidence index decreased by 1.4%, according to survey results released in August. (See chart) The survey also showed 23.2% of 20,000 residents in 50 cities expect home prices to fall in Q3, a six-year high.

EXISTING MORTGAGES

The central bank also pledged this week to guide down existing mortgage rates closer to new loans, with the average reduction expected to be about 50bp, short of the expected 80bp and less than 2023’s 73bp reduction, said Yan Yuejin, vice president of the E-house China Research and Development Institution.

The move, however, will substantially ease the burden on households and restore sentiment, Yan noted, estimating mortgagees with a CNY1 million 30-year loan will save about CNY300 a month.

Li Yujia, chief research fellow at the Guangdong Urban & Rural Planning and Design Institute, said the PBOC’s recognition of deflation drove this week’s easing measures. (See MNI EM: More RRR Cuts Would Pave Way For China Bond Sales-Advisors)

Higher real interest rates dent consumption greatly, Li added, noting the PBOC’s easing will help avoid default by those who bought between 2017-2019 when rates were high. Home prices in many cities have fallen back to about 2017 levels, Li added. (See MNI EM: Beijing Shifts Focus To Consumption To Boost H2 GDP)