China’s Property Market Needs More Government Support, Analysts Say
China’s property market, which makes up a substantial chunk of the country’s economy, needs more government support to prevent further deterioration, analysts warn.
Existing home prices fell in October by the most since 2014, while outstanding property loans fell for the first time in history, according to Larry Hu, chief economist at Macquarie.
This reflects increased drags on both the demand and supply sides, as the policy so far has focused on boosting demand. The Chinese government has not addressed the most important issue: credit risk related to developers. Without a lender of last resort, a self-fulfilled confidence crisis could easily happen as falling sales and rising default risks reinforce each other. Some large developers have recently seen their credit risks rising rapidly.
Since November 2022, Chinese authorities have rolled out a raft of measures aimed at improving developers’ access to financing and reducing mortgage rates. Recent figures indicate that property sector troubles are only worsening.
The average price for existing homes across 70 major cities fell by 0.6% in October from the prior month, compared with a 0.5% drop in September, with China’s largest cities leading declines. Nomura analysts have reported that larger cities are expected to have a more sustained demand for homes due to the availability of jobs.
Policymakers have made an effort to signal more support. Late on Friday, the People’s Bank of China announced it held a meeting with other financial regulators to allow lending to real estate developers that are “operating normally,” among other signals of support.
“The meeting should help avoid an undesirable contraction of credit extension in the final two months of the year, as financial institutions try to time new loan deals to the new year to engineer a strong start,” Citi analysts said in a report.
Analysts are calling for more support to boost private sentiment, as shares of several major property companies closed higher. Developer Sunac rose 5.9% in Hong Kong trading.