China’s housing prices fell in October due mainly to falling prices in less developed, so-called Tier-3 cities, according to Goldman Sachs official data analysis.
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BEIJING – China’s housing sector is not poised for a quick recovery, despite this month’s rally in shares of major property developers.
That’s because the latest support by Beijing doesn’t immediately solve the main problem of falling home sales and prices, analysts say.
Last week, property developer stocks surged after the news of the central bank and banking regulator issued measures that encouraged banks to help the real estate industry. It came with another measure of support earlier this month.
Shares of Garden StateChina’s largest developer by sales, has more than doubled in November, and they Longfor has surged by about 90%. Stocks have given back some gains this month.
Meanwhile, iron ore futures surged by about 16% this month – Morgan Stanley analysts say about 40% of China’s steel consumption is used in property construction.
The situation is one of “strong expectations, but weak reality,” and market prices are deviating from fundamentals, Sheng Mingxing, a ferrous metals analyst at Nanhua Research Institute, said in Chinese as translated by CNBC.
Sheng said it was important to see if the apartments could be completed and delivered during the peak construction period of March and April.
The new measure, widely reported in China but not officially released, stipulates loan extensions, calls for treating developers equally whether they are state-owned or not and supports bond issuance. Neither regulator responded to CNBC’s request for comment.
“This is really a temporary relief from developers who have to meet their debt repayment needs in the near term – a temporary liquidity relief rather than a fundamental return,” Hong Kong-based analyst Samuel Hui, director, Asia-Pacific company, Fitch Ratings, said on Wednesday .
“The key is that we still need the underlying home sales market to improve,” he said, noting homebuyer confidence depends on whether developers can finish building and delivering apartments.
Earlier this year, many homebuyers refused to continue paying mortgages on apartments when construction is suspended. Homes in China are usually sold before completion, generating a major source of cash flow for developers.
Analysts differ on when China’s property market may recover.
Fitch said the timeline “remains uncertain,” while S&P Global Ratings Senior Director Lawrence Lu expects the recovery to take place in the second half of next year.
“If this policy is implemented quickly, this will stop the downward spiral for developers, this will help investors’ confidence. [in] the developers,” he said.
Residential property sales for the first 10 months of the year fell by 28.2% from a year ago, the National Bureau of Statistics said last week. S&P Global Ratings said in July it expected a 30% plunge in sales for 2022, worse than in 2008 when sales fell by around 20%.
Slow economic growth, uncertainty about the ongoing control of Covid and worries about future income have reduced the appetite for home buying.
Adding to the concern was a drop in prices.
housing prices across 70 cities fell by 1.4% in October from a year ago, according to Goldman Sachs data analysis released Wednesday.
“Despite more local housing measures in recent months,” said the analyst, “we believe the property market in lower-tier cities still faces strong headwinds from weaker growth fundamentals than large cities, including population outflows clean and a potential oversupply problem.”
The report said housing prices in the largest, tier-1 cities rose 3.1% in October from September, while Tier-3 cities saw a 3.9% decline in the period.
About two years ago, Beijing began to crack Developers’ high reliance on debt for growth. The the country’s most indebted developer, Evergrande, defaulted late last year in a high-profile debt crisis that rattled investor confidence.
Concerns about the ability of other real estate companies to pay their debts have been raised since then spread to the developer once-healed.
Evergrande, Kaisa and Shimao stock trading is still suspended.
While Covid controls have dragged down China’s growth this year,… The struggle of our real estate market has also contributed significantly.
The property sector, including related industries, accounts for about a quarter of China’s GDP, according to analyst estimates.
“I think the real estate sector will become more of a drag on the economy in 2023,” Tommy Wu, senior China economist at Commerzbank AG, said on Wednesday.
“It is too early to say whether the measures rolled out today will be enough to save the housing sector,” he said. “But it feels more reassuring now because it seems more likely that stronger measures will be rolled out if the decline in housing still does not become meaningful in the coming months.”
Ultimately, China’s real estate industry is undergoing a state-directed transformation – to a smaller part of the economy and a business model that doesn’t depend on selling apartments before completion.
The property market has shrunk by about a third compared to last year, and is likely to remain the same size next year, S&P’s Lu said.
State-owned developers have fared better during the downturn, he said.
In the first three quarters of the year, Lu said sales by state-owned developers decreased by 25%, compared to a 58% decrease in sales for developers not owned by the state.
And despite the new policy moves, Beijing’s stance remains firm on curbing home buying at scale.
Whether it’s a message from the National Bureau of Statistics or the People’s Bank of China, this month’s official announcement reiterated that houses are for living, not speculation – a mantra that marks the beginning of the real estate market.