Beijing talks up ailing property market with upbeat assessment after data shows housing demand remains weak
- A senior government official says Beijing’s austerity measures to de-leverage the property sector could pave the way for healthy growth in the market
- Comments emerge after home transaction volumes in 330 cities dropped 19.2 per cent in the year to June and their value plunged 23.4 per cent
The ongoing clean-up in China’s property sector – which accounts for 8 per cent of the world’s second largest economy – has made markets turbulent, but these are temporary setbacks and a resolution is around the corner which could be a harbinger of long term stability for the industry.
A senior government official said on Monday that Beijing’s austerity measures to de-leverage the property industry could take effect in due course, and this may pave the way for healthy growth in the market.
These comments came as authorities try to boost confidence and strike an optimistic note in an ailing sector amid ramped-up efforts from financiers and housing institutions.
Fu Linghui, spokesman for the National Bureau of Statistics, told a press conference on Monday that the country’s property market would be back on the growth track at the end of this campaign.
“The real estate market is undergoing a temporary adjustment,” he said. “The supply-demand balance will stabilise at an orderly pace if the adjustment is successfully enforced.”
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According to data provider Wind Information, home transaction volumes in 330 cities it covers dropped 19.2 per cent in the year to June while the total value of the deals plunged 23.4 per cent.
Housing demand has been weak in the second quarter of this year, leading to a fall in prices.
Beike Research Institute’s data based on samples in 25 cities showed that existing home prices dropped 1.4 per cent month on month in June, following a 1 per cent drop in May and 0.7 per cent decline in April.
A weak property market is viewed by analysts as a huge stumbling block to the growth of the Chinese economy.
“The verbal support [by Fu] reflects that the central government is aware of the vital importance of the property industry,” said Ding Haifeng, a consultant at financial consultancy Integrity in Shanghai. “But the authorities have to help dozens of developers to overcome the liquidity problem in the first place.”
In August, 2020, Beijing introduced the “three red lines” guidance to reduce developers’ leverage ratio as a way to rein in the red-hot sector.
The framework caps debt-to-asset ratio for developers at 70 per cent after excluding advance receipts, net debt-to-equity at 100 per cent, and short-term borrowings at no more than cash reserves. Failing to meet those “red lines” may result in them being cut off from access to new loans from banks.
The policy resulted in a wave of bond and loan defaults involving developers from China Evergrande Group to Kaisa Group Holdings, since 2021. Analysts expect the path to resolution to be a challenging one.
“There is no silver bullet,” said Aidan Yao, a Hong Kong-based independent economist. “In an extreme case they could let the central government take some housing inventories on their books. This will inject cash into the developers’ balance sheets and allow the government to allocate the homes for social housing.”
About 50 mainland developers have defaulted on some US$100 billion worth of offshore bonds over the past two years, according to a JPMorgan report in December, with 39 of them seeking restructuring plans with creditors for US$117 billion in stressed debt.
The loans were used to provide financing support to developers so that they can complete construction of unfinished projects to ensure flats were delivered in time with analysts saying demand remains strong.
“Demand for housing is still high given the potential demand from migrant workers who want to relocate and new graduates. It will also reiterate the message – houses are for living in and not for speculation. The effective demand is still muted as affordability is quite low,” said Yao.
Last Monday, the People’s Bank of China and the National Financial Regulatory Administration required financial institutions to extend by a further 12 months existing loans, including trust loans, given to developers that are due towards the end of next year.
Commercial banks can also classify project-based special loans provided to developers before the end of 2024 in the lower-risk category.
