China's "antidote" is difficult to save the real estate sector?

According to Goldman Sachs estimates, China's housing market crisis originated from Beijing's "three red lines" policy introduced in August 2020, which made it difficult for fund developers and caused more than $160 billion in junk bond defaults.

The investment bank said secondary home prices have fallen 20% while new home construction has weakened 16% from its peak.

A residential building under construction in Jinan, China, on Thursday, May 9, 2024. Photo: Bloomberg.

In response, Beijing announced a historic rescue package, including mortgage interest rates and deposit reductions to revive the housing market, which accounted for a quarter of the country's economic growth at its peak.

At the same time, the country has also set up a 300 billion yuan (more than $42 billion) lending facility to support government-subsidized housing projects. Provinces and cities are encouraged to use the money to buy completed, affordable commercial housing for social housing programs.

According to the China Real Estate Information Corporation (CRIC), in May, 30 major Chinese cities recorded a total new home transaction volume of 10.8 million square meters, up 4% from April.

Sales were up 23% from the first quarter's monthly average of 8.77 million square metres but down 34% from sales in the same period last year.

“We estimate new home prices will fall 5 to 10 percent this year, not much change from the period before Beijing launched the rescue package,” said Raymond Cheng, managing director of CGS International Securities Hong Kong.

“Developers are seeing their sales improve but not as quickly as expected. Transaction frequency and prices have not changed significantly as buyers remain cautious,” he said, citing responses from six major property developers, including China Overseas Land and Investment, China Resources Land and Longfor Group.

Last week, major Chinese cities including Shanghai, Shenzhen and Guangzhou lowered mortgage rates and eased home purchase restrictions to attract buyers, with local media reporting an increase in inquiries and visits to local property sales centers.

Residential buildings under construction at China Vanke's Elegant Lifestyle project in Shenzhen, China, on Wednesday, April 17, 2024. Photo: Bloomberg.

For example, all 422 apartments of a new luxury project in Shanghai's Putuo district, priced at an average of 104,000 yuan per square meter, were sold out two hours after its launch on June 3, local media Jiemian News reported.

New home sales in the city rose 35% in the week ending May 27, a week after the city government eased home purchase restrictions and introduced subsidies to attract buyers, according to data compiled by Centaline Property in Shanghai.

But such bright spots are few and far between as price stability is out of reach in both primary and secondary markets, while pressure to clear excess inventory remains “hanging”.

“There is still a price game between homeowners and potential buyers,” said You Liangzhou, owner of Shanghai-based real estate firm Baonuo, adding that he did not expect prices to recover in the near future. CRIC data shows the city’s market has cooled since the start of the year, with total home purchases down 43% in the first five months of the year from a year earlier.

“Shenzhen home prices have not changed and developers are rushing to cut prices to clear inventory,” said Andy Li, China CEO of Centaline Real Estate Agency.

“Buyer confidence is very weak and they will stay away unless they see the price bottoming out,” Mr. Li added.

Only four of the 30 major cities tracked by CRIC showed signs of improving inventory reduction trends in May compared to the previous month. However, the cycle in all 30 cities tracked is longer than last year, with 20 of them expected to take more than 18 months to reduce inventories, CRIC said.

Credit analysts have taken a dim view of the outlook for China’s housing market. Fitch Ratings this week cut its sales estimates for this year, expecting sales to fall 15% to 20% this year, down from its previous forecast of a 5% to 10% decline. It also expects new home prices to fall 5% this year.

“We forecast China’s long-term housing demand outlook to average 800 million square metres,” Fitch Ratings also said, adding that the figure is “significantly lower than in previous years, suggesting that the trend of industry consolidation may not abate for some time.”

Khanh Vy (According to SCMP)

Source: https://www.congluan.vn/thuoc-giai-cua-trung-quoc-kho-cuu-linh-vuc-bat-dong-san-post298665.html