For anyone who has lived through the last few property market slumps in China, it is hard not to feel a sense of déjà vu.
Since the beginning of the year, the housing market has been in a funk. The top 100 developers experienced a 53% decline in sales in March from the same month a year ago, according to data from China Real Estate Information. It marked the ninth consecutive month of declines and the steepest for the industry since last summer.
Smaller cities have been hit especially hard. In the first quarter of this year, the total transaction area of residential housing in third- and fourth-tier cities fell by 42.9% year-on-year, according to data from the National Bureau of Statistics.
In order to prevent an ailing real estate market from derailing economic growth, 21CN Business Herald reported, more than 80 cities have relaxed their homebuying policies such as removing restrictions on property purchases and loosening mortgage lending this year. Some have even lowered the downpayment ratio in an effort to lure homebuyers back to the market.
Provincial capital such as Nanjing and Shanghai, where demand is usually more robust, are now planning to bolster home sales, 21CN said. The Lingang Special Area in Shanghai, for instance, will allow those designated as ‘talents’ (those deemed to add value to the city based on their sought-after skills and greater education levels) to buy homes in the free trade zone after working there for three months, down from at least one year previously.
Some of the recent downturn can be blamed on the Covid-19 pandemic. Take Zhengzhou. The capital of Henan province is just two and a half hours south of Beijing by high-speed rail but it is requiring all arrivals to the city to quarantine for three days. Out-of-town buyers, which used to account for more than half of the city’s property sales, have simply stopped visiting, local property brokers complain. Compared with the same period last year, new home sales in Zhengzhou fell more than 30% in the six weeks from March 1 to mid-April, mirroring a nationwide trend.
The central government’s efforts in deleveraging the sector have also weighed on sentiment (see WiC510). As financially-strapped developers are forced to offer steeper discounts to clear their inventory, more potential homebuyers are waiting on the sidelines in the expectation that prices could drop further.
As of the end of February, there were 608.7 million square metres of unsold residential property in 100 cities across the country. At the current rate of sales, it could take up to 20 months to digest that inventory and that’s assuming more new developments don’t hit the market.
“Against this context, the downward pressure on housing prices is definitely there. For most cities that rely on real estate to stabilise the economy, how can they not worry?” one financial commentator wrote.
Local governments have started to turn more dovish in their property market policies after receiving new directives from Beijing. The turning point came on March 16 after a meeting by the Financial Stability and Development Commission (FSDC), as as China’s senior leaders pledged more support for troubled sectors such as real estate in a bid to ensure economic and financial stability (see WiC579).
At the macro level China’s economy seems to be holding up, but with factories, stores and even whole cities shuttered as the government has scrambled to contain the Omicron outbreak since March, the impact is increasingly being felt. Even some local government officials admit to having their benefits cut in the last few months, one told WiC.
Developers in lower-tier cities have resorted to cutting prices to trim inventory. National Business Daily reported that one desperate developer offloaded an entire building in the suburb of Zhengzhou by slashing prices to Rmb5,000 per square metre. That’s down from Rmb7,500 a square metre when the project was first released in 2019.
Thankfully, the fire sale did lead to an uptick in sales. “There were so many interested buyers. I worked until 2am before going home,” a broker told the newspaper, adding that almost all the 100 units in the 33-storey building were sold out in one week.
Other property companies are getting creative in finding ways to help purchasers. National Business Daily reports that a cash-strapped developer has been offering zero- downpayment options to potential buyers, for instance, which is against the current regulations that require minimum downpayments of 20% of the property’s value. Even more interesting, the project in question is in fact developed by a state-owned enterprise, which suggests that local governments are now turning a blind eye to such practices to drive down inventory (in China ‘blind eyes’ are one of the great unspokens of local government policy).
That said, this time round homebuyers have also learned their lessons from previous housing crises, which saw developers that faced liquidity crunches abandoning half-completed projects. In the past, homebuyers were often most concerned about the location of their new property purchases and whether there were good schools for their children nearby, National Business Daily said. But now the preference is for homes that are ready to move into.
It make sense to take on a wait-and-see mentality. The Chinese property market is prone to policy risks and at the time being the direction of the policy headwind is not clear – with rumoured tussles a at the top. While regulators led by vice premier Liu He, who also chairs the earlier-mentioned FSDC, are concerned the government is underestimating the economic impact of the slowdown in the real estate sector and of the Covid-19 lockdowns in various cities, other senior officials such as Han Zheng and Hu Chunhua (two vice premiers alongside Liu at the State Council), have opposed efforts to ease the pressure on the property sector, the Financial Times reported on Thursday, citing six officials and policy advisers in the Chinese capital.
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