Sell-Side Views On China Housing Announcements
Banks Goldman Sachs and HSBC weigh in on China's housing policy announcements from last Friday. The measures are seen as positives, but more is likely needed to boost the housing sector. See below for more details.
Goldman Sachs: "Chinese policymakers unveiled a fresh batch of easing measures for the housing market today (17 May), including clear top-down guidance for local governments to purchase existing housing inventory for public housing provision, an RMB300bn relending quota for destocking the housing market, reductions in downpayment ratios and mortgage rates, and more policy support to secure the delivery of pre-sold homes. We believe local government purchase of existing housing inventory, if implemented at scale, can help stabilize home sales, prices and completions, but the boost to new starts and land purchase would be limited. Lower downpayment ratios and mortgage rates may also boost home sales to some degree, although the magnitude of downpayment ratio reductions was relatively small this time, and the pace of cuts to effective mortgage rates could be somewhat constrained by bank net interest margins. We expect more housing easing efforts down the road -- especially on the demand-side -- and view funding and implementation as key for the effectiveness of any property market rescue plan. Besides the RMB300bn relending quota, we believe PBOC's pledged supplementary lending (PSL), local government special bonds (LGSB), policy bank bonds and commercial bank loans could be potential funding sources for housing destocking. Upcoming policy events will be worth monitoring closely, especially on solutions to address funding and implementation bottlenecks."
HSBC: "Some are underwhelmed by the scale of the new tool. On one hand, quite some existing structural monetary policy tools have fairly low take-up rate, so the effectiveness remains uncertain. On the other hand, as we argued in today's report, it might work better if it's a bolder and larger scale effort (Stabilising the property market: price tag? 17 May 2024). And still, it's debatable whether it's a good idea to put more debt on already highly-leveraged local governments.
But don't be too disappointed yet, as this is just the beginning. Today, the policymakers are approaching the matter with a heightened sense of urgency as April activity data showed that property-related indicators remained weak (17 May 2024). So if it's not enough, more will come in our view. Stay tuned.