The View | With China battling to stabilise its property market, talk of a recovery is premature

The easing of Covid-19 restrictions has undeniably boosted sentiment and sales. But for a government that must still deflate a bloated and overleveraged industry without crashing the market, just stabilising things is proving a challenge

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A pedestrian heads towards residential apartments under construction in Beijing on March 4. Tensions between efforts to forestall a financial crisis and the need to reduce leverage and speculation make it extremely difficult to restore confidence in the industry, particularly among homebuyers. Photo: Bloomberg

Published: 8:15am, 14 Mar 2023

Is the tide turning for China’s ailing residential property market? Judging by some of the recent reports issued by the world’s leading credit rating agencies, there are grounds for cautious optimism.

In a note published on January 11, S&P Global Ratings said a package of measures unveiled by Beijing since last November – designed to ease the liquidity crunch faced by developers – had put the sector “on the cusp of a recovery”, drawing a line under the crisis.

A report published by Moody’s Investors Service on March 1 said the measures signalled “a notable change in [the] policy stance to loosen the credit environment, which will bolster investor confidence and reduce the number of defaults”.

There are also signs that distressed developers are making progress in restructuring their debts. A report published by Fitch Ratings on February 23 noted that at least eight had “completed or reportedly kicked off the restructuring of their bonds – mostly by extending maturities – in onshore and offshore markets”.

More importantly, demand appears to be stabilising. In February, the value of new home sales by the 100 biggest developers rose 14.9 per cent year on year, the first increase since June 2021. Prices steadied in January, with new home values in 70 cities remaining flat month on month following 16 straight months of declines.

Given the scale of the shift in policy in China over the past several months – the dramatic dismantling of the zero-Covid policy late last year amplified the impact of the easing in funding pressures – it would be surprising if the loosening of restrictions in the property sector did not have a significant effect on sentiment.