China’s first ever decline in mortgage loans sets alarm bells ringing, piling pressure on Beijing to stem property market slide
- Personal mortgage loans shrank in the second quarter from a year earlier, marking the first quarterly decline since central bank records began in 2004
- Homebuyers have been taking fewer loans since the first quarter of 2022 as China’s zero-Covid restrictions curtailed property sales, denting demand for borrowings
China’s outstanding mortgage loans dropped for the first time on record, according to the central bank, underscoring the urgency for the government to take more measures to prop the ailing property sector.
Homebuyers have been taking fewer loans since the first quarter of 2022 as China’s zero-Covid restrictions curtailed property sales, denting demand for borrowings. Loans continue to shrink even after the economy emerged from zero-Covid this year, as the economic slowdown and growing unemployment saw a reduction in large-ticket financial commitments.
The unprecedented decline has sparked fears a further deterioration in China’s property market will compound the nation’s already faltering growth outlook and make the job of stemming the slowdown more challenging. While the industry has weathered repeated crackdowns by the government over the past two decades and its contribution to GDP has waned, it remains a critical component of China’s US$18 trillion economy. The property market and related sectors from home appliances to building materials make up about a quarter of the nation’s gross domestic product.
“High-frequency data shows that new-home sales remained sluggish in July,” said Yang Zhenyu, an analyst at China Merchants Securities. “The recovery outlook now remains uncertain and the market is awaiting policies that will boost the sector.”
Housing sales have stagnated after a brief rebound earlier in the year spurred by China’s reopening of the economy, with the downtrend spreading even to the bigger cities. Sales of new homes dropped at an annual rate of 5.3 per cent to almost 600 million square meters in the first half, according to the official data, while property investment fell 8 per cent from a year earlier to 5.9 trillion yuan in the same span.
Beijing is already on the move to reassess and recalibrate its tough stance on the industry, with the Communist Party’s highest decision-making Politburo striking a dovish tone at its meeting on Monday. The ditching of the slogan “housing is for living, not for speculation,” the first omission at a high-level conference in five years, has fanned speculation that the long-standing restrictive measures imposed in tier-one and tier-two cities will be eased.
The Hang Seng Mainland Properties Index jumped by 13 per cent this week, the steepest weekly gain since December. Chinese developers trading in Hong Kong topped the list of the best performers on the Hang Seng Index for the week, with Longfor Group Holdings surging 27 per cent and Country Garden Holdings rallying 22 per cent.
Still, a sustained rebound in the property market is unlikely, given the multi-headwinds the industry faces, such as the growth slowdown and the shrinking pile of personal savings, according to Yang at China Merchants Securities.
The fate of the property market largely hinges on government policies and homebuyers’ confidence, according to Raymond Cheng, managing director of property management of CGS-CIMB securities. He expects some big changes in the strict purchase restrictions that currently prevail in the biggest cities.
“Home-buying sentiment was quite weak at the end of June, this explained why authorities need to do more,” said Cheng. “And homebuyers want to wait in anticipation of further price declines,” he added, explaining the hurdles to boosting consumer confidence.
