Update | Beijing’s efforts to stabilise property market look set to pay off in the second quarter, analysts say
China’s property prices may stabilise in the second quarter of this year, thanks to recent intensive policies to drive housing demand across the country and lower inventory levels, analysts say.
The central government has recently introduced a raft of measures to bolster the sluggish property market, including cutting the minimum mortgage down payment to 20 per cent for first home buyers, lowering the deed tax of property transactions, and waiving business tax on properties sold after two years of purchases.
Meanwhile, local governments in more than 130 Chinese cities have rolled out intensive policies to drive housing demand and reduce inventory, including subsidising the home buying ambitions of farmers and migrant workers, easing application rules on government-subsidised HPF (Housing Provident Fund), and limiting land for new residential projects, among other measures.
“We expect these incremental policy supports to pave the way for solid second quarter property sales performance across the country,” analysts from Goldman Sachs said in a recent research note.
Still, there is no sign of a pick-up in property investment, as land sales in January plunged 23 per cent from a year earlier. Goldman Sachs believes there is little appetite for more leverage among developers and that their “balance sheets are on track for the YTD (year-to-date) improving trend” with lower inventory.
The Wall Street investment bank gave a buy rating for Shanghai-listed Poly Real Estate, Shanghai Shimao, China Fortune Land Development, Gemdale, and Shenzhen-listed China Vanke and Shenzhen Overseas Chinese Town.
However, Goldman analysts also warned investors against risks, including weaker-than-expected sales, deteriorating balance sheets on aggressive land acquisitions, and a hard landing for the Chinese economy.
Deutsche Bank on Tuesday noted the greenshoots in the form of housing turnover, as home sales volume in 32 major Chinese cities increased 17.5 per cent so far this year from the same period last year, according to data from real estate portal Soufun.
In addition, weekly sales volume from February 15 to 21 jumped 79 per cent year-on-year, even as the data also showed a 32 per cent decrease compared with January’s average weekly sales.
“We believe the year-on-year growth numbers next week should tell a better picture,” they said.
On the supply side, the high inventory pressure has also eased to some extent, as the housing inventory level in 35 major cities dropped for a fourth consecutive month in January, down 4.7 per cent from a year ago, according to real estate service provider E-House.
Deutsche Bank also suggested investors buy the Shanghai-listed shares of Poly Real Estate, which announced Monday that it plans to sell 3 billion yuan of domestic corporate bonds and may exercise an over-allotment option to purchase an additional 2 billion yuan.
Poly Real Estate’s contract sales jumped 91 per cent in January on year, thanks to a recovery in housing prices in first and second-tier cities at the start of the new year, the company said.
Meantime, BNP Paribas called for more investor attention on commercial property developers, such as Dalian Wanda, China Resource Land and Joy City.
“We think retail sales growth for these mall operators will re-accelerate in 2016, as most of their tenant repositioning is over,” said Wee Liat Lee, an analyst for BNP Paribas.
In addition, accommodative policies from the Chinese government should also help mall operators lower their funding costs and capital rate compression, he added.
He said Dalian Wanda, China Resources Land and Joy City are likely to experience double-digit rental growth over the next two to three years.
