End of the road for China’s property policy easing?
It could be curtains for the loose policy environment in China’s property sector after warnings by a People’s Daily article against debt-fuelled growth, say analysts.
The article published on Monday cited an unnamed“authoritative” source as saying that boosting growth by increasing leverage is risky and “unrealistic”, warning that a high leverage ratio could trigger a systemic financial crisis. The source is believed to be from a top Chinese policymaking body.
“Property inventory should be cleared through urbanisation, instead of adding leverage,” the person said.
Alan Jin, a property analyst at Mizuho Securities, said he expects the central government to tighten the lending policy for the property sector.
“The concern is understandable. The growing housing bubble in China’s big cities has been caused by over-relaxed policy,” Jin said.
China has adopted a slew of easing measures, including six interest rate cuts and slashing the minimum down payment requirement, since late 2014 to rev up sales in a sector that generates more than 15 per cent of the gross domestic product (GDP). As a result, cheap credit has flooded the property market in first- and bigger second-tier cities, pushing up prices in what many see as an already overheated market.
Prices have been skyrocketing in recent months in some cities in particular. Shenzhen saw prices jump a record 62.5 per cent year on year in March.
“What the government is worried about is speculative activities. It would have to tighten supervision,” said Kaven Tsang, a Moody’s vice-president and senior credit officer who specialises in China property. The loan-value ratio for Chinese homebuyers remains low, Tsang added.
The credit profile of Chinese property developers is also deteriorating. Moody’s on Tuesday said the outlook for 44 per cent of the developers rated by the agency was negative, compared to 20 per cent half a year ago. The proportion is one of the highest since 2012.
“Aggressive debt-funded growth” was the most common reason, it said.
“It is possible for the government to shut down the domestic bond market when it wants to control (the risks of) the property market,” Mizuho’s Jin said.
China reopened the domestic corporate bond market to developers at the end of 2014 to encourage property investment. With ample liquidity in the domestic bond market, developers have issued billions of yuan of corporate bonds in the past year to raise money on the cheap. The proceeds have gone into buying land, bidding up land prices in the process.
“It is very risky to buy (this) expensive land at the moment as home prices can’t grow that fast,” Jin said.
Moody’s expects home sales growth in China to slow over the next 12 months. At the end of March, the country’s outstanding property loans extended by major financial institutions had risen to 22.5 trillion yuan, a 22.2 per cent jump year on year.
