MNI: China Tier-one Housing Markets Likely To Stabilise
MNI (BEIJING) - Housing markets in China’s first-tier cities are likely to stabilise within the year, supported by further reductions in homebuying thresholds and restored confidence as local governments work to ease a liquidity crunch for high-quality real-estate developers, advisors and analysts told MNI.
“Tier-one and strong tier-two cities are expected to see the sales rebound maintained into March, the traditional boom season, though lower-level cities will continuewith weakness in the short term,” said Xie Yifeng, dean at the China Urban Real Estate Research Institute and a Housing Ministry consultant.
This follows a 134% y/y increase in transaction volume per square meter in first-tier cities during the Spring Festival, driven by the lower comparison base, deeper price discounts and more relaxed policies.
Beijing, Shanghai and Shenzhen have room to shorten further the number of social security or tax payment years homebuyers require to become eligible, said Xie, noting authorities could also lower the downpayment ratio on second homes to as low as 15% from the current 20-25% alongside tax and fee cuts. “Strong purchasing power and continuouspopulation inflow will further support demand,” he added.
However, Xie saw limited space for lowering housing mortgage rates in the near term, which currently stand at historic lows of about 3% while lenders’ net interest margin (NIM) slid to a record 1.53% low by the end of Q3. “Banks could open space for a 5-10 basis point mortgage cut only after lowering their deposit interest rates to protect NIM," he said.
Meanwhile, local authorities will quicken the acquisition of unsold homes and vacant land using local government special bonds, Xie added. (See MNI: China To Raise Local Bonds To Aid House Destocking)
LIQUIDITY CRUNCH
According to media reports, the Shenzhen government plans to use CNY20 billion of special bonds to buy property and land from leading developer Vanke, following the municipal government's intervention earlier this month to reshuffle the company's senior management, enhance state oversight and address non-repayment risks.
Yan Yuejin, vice president of the E-house China Research and Development Institution, said the initiative will likely progress alongside several other cities in Guangdong province, which recently unveiled the first batch of special bonds to recycle idle land.
The takeover would increase market confidence and signal a risk bottom, argued Li Yujia, chief research fellow at the Guangdong Urban & Rural Planning and Design Institute.
However, further efforts from Vanke would be needed to pay off the firm’s CNY32.6 billion of maturing debt this year domestically, as well as CNY3.6 billion of overseas borrowings, Xie continued. Management may need to boost borrowing from major shareholders and banks, rejuvenate assets, and accelerate home sales, he added.
Vanke received a CNY2.8 billion loan last week from its largest shareholder, Shenzhen Metro Group, for debt repayment.
Such a bailout may only be replicated among state-owned developers, as many private developers’ land was already used as collateral and therefore not available for government recycling, Xie noted.
“Private developers with a good track record may access credit enhancements for bond issuance, or receive loan support via whitelisted housing projects aimed at ensuring property delivery,” said Xie, adding that firms considered “financially unhealthy” or having a default record would have to rely on their own means.