China's property measures give sales a boost, but only in big cities
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[June 18, 2024] By
Liangping Gao and Marius Zaharia
BEIJING/HONG KONG (Reuters) - China's latest property support measures
have boosted transactions in its biggest cities, but activity in smaller
localities is struggling to get off the ground, pointing to more pain
ahead for most of the country's real estate market.
On May 17, China cut minimum mortgage rates and downpayments and
instructed municipalities to buy unsold apartments to turn them into
social housing, sparking dozens of announcements from cities easing
policies under the new guidelines.
Small samples of transactions data and interviews with 10 real estate
agents across China show the measures had an uneven impact throughout
the country, reviving demand in mega-cities such as Beijing and
Shanghai, but not in smaller places.
This adds to concerns fuelled by poor home prices data on Monday that
the downturn may have further to run, especially in the smaller cities
where the quantum of excess supply is far greater than in larger cities,
keeping pressure on policymakers to extend more support.
The depressed property sector, which contributed nearly a fourth of
gross domestic product before it slipped into crisis in 2021, remains a
major drag on the $18 trillion economy.
"For large cities, policies are more effective because demand and supply
are more balanced," said Zhang Zhiwei, chief economist at Pinpoint Asset
Management.
"Many of the small cities have a long-term structural oversupply problem
that's more difficult to resolve. It will take longer."
Analysts say Beijing needs to direct more funds to smaller city
governments to reduce inventories and stabilize those markets, but most
expect gradual support rather than any big-bang measures as authorities
are wary of bailing out profligate developers.
Data from real estate research firm China Index Academy showed the
average daily transactions for second-hand homes between May 18 and June
5 was 27.7% higher than the April average in Shanghai and 8.10% higher
in Beijing. Transactions for new homes were down 0.2% and 6.4%
respectively, with agents saying older apartments in Beijing and
Shanghai typically sell faster because they are in better areas.
In Shanghai, one agent said inquiries for apartments have tripled since
the city relaxed downpayment requirements on May 27, and noted 700-900
sales a day versus 500 previously. Another agent said home viewings
increased 60%.
One agent in Beijing said viewings in the capital also increased "a
lot."
"Basically all agents are booked up," said the agent in the capital, who
only gave his surname Chen.
'SOMETHING BROKEN'
China Index Academy did not publish data for smaller cities, but
separately released transactions data for the June 8-10 period showing a
decline of 16% year-on-year for a group of 30 cities, including the
largest ones.
This suggests sales in smaller cities are still weak and buyers are
still wary cash-strapped developers may not be able to complete the
projects.
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Debris is seen in front of the apartment compound Taoyuan Xindu
Kongquecheng developed by China Fortune Land Development, in
Zhuozhou, Hebei province, China March 19, 2021. REUTERS/Lusha
Zhang/File Photo
"Smaller cities are doing a lot to incentivize people to buy more
homes and it's simply not working," said Christopher Beddor, deputy
China research director at Gavekal Dragonomics.
"Something is broken. I think that something is the developers: you
can't have a property market turnaround without persuading
homebuyers that they will receive presold units from developers."
Beddor says the property market would remain a drag on these small
city economies in the long term, weighing on tens of millions of
consumers and posing risks to small regional banks which are often
highly exposed to sector.
Smaller cities have lowered mortgage rates and minimum downpayments
more than the bigger ones, but even the most aggressive cities have
so far struggled to revive demand, agents said.
Jiaozhou, a city of under 1 million people on the east coast, broke
the 15% new downpayment limit for some buyers into two 7.5% payments
up to two years apart to accelerate demand from those who needed an
apartment but didn't have enough savings. Shanghai and Beijing set
minimum downpayments at 20% and 30%, respectively.
But Jiaozhou property agents did not notice the impact.
"My workload is about the same as before. Maybe we get more
inquiries, but not many people actually book property tours," said
one agent who only gave her surname Ma.
Authorities in the central city of Changsha, home to about 10
million in the indebted Hunan province, told developers to refund
deposits unconditionally if buyers change their mind before
finalising the transaction, hoping to embolden those on the
sidelines to make bids.
"Few people want to buy houses these days. Customers think the new
policies are taken precisely because the market is not good," a
Changsha agent surnamed Xu said.
Goldman Sachs analysts expect more easing measures in coming months.
"However, considering persistent property weakness related to
lower-tier cities and private developers, such easing measures may
only lead to an L-shaped recovery in the sector in coming years,"
they wrote in a note on Monday.
($1 = 7.2559 Chinese yuan renminbi)
(Additional reporting by Beijing newsroom; Editing by Shri
Navaratnam)
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