China’s ‘piecemeal’ stimulus plan stirs hope in property market
Beijing seeks to rekindle growth in economically crucial sector but investors remain cautious
For Beijing-based real estate agent Xue, deals have bounced back over the past week in the wake of government measures aimed at propping up the country’s stumbling property sector and the broader economy.
“The inventory of available properties is decreasing daily,” said Xue, who asked to be identified by one name, adding there were signs that after a long period of falling prices, some homeowners were hoping to raise them again.
Xue’s upbeat prognosis was not universally shared — other agents reported little change in the market — but high-frequency property market data over the past week showed some increase in buyer interest in the country’s biggest cities, economists said.
The precarious state of China’s property sector, which normally accounts for more than a quarter of activity in the world’s second-largest economy, prompted Beijing last week to unleash its most comprehensive effort in years to rekindle demand in the debt-stricken industry.
The measures, which included relaxing requirements for mortgage downpayments and interest rates, came alongside wider steps designed to boost confidence that targeted the country’s stock market, consumer sentiment and weakening currency, the renminbi.
Taken together, the announcements represented policymakers’ firmest acknowledgment of the scale of the challenge facing China’s faltering economy. But economists said investors would wait for more evidence of a tangible impact on domestic demand before venturing back into the market.
“These are the strongest measures to date when it comes to the property market, so it really shows that Beijing is putting some muscle behind its words,” said Frederic Neumann, HSBC chief Asia economist. “It remains to be seen really how much traction they’re getting.”
China’s economy began showing signs that a post-pandemic recovery was losing steam in the second quarter as slumping property sales compounded a fall in exports and industrial production.
Sentiment continued to weaken after the ruling Communist party’s July politburo meeting failed to muster even a modest stimulus package to boost a recovery they admitted was making only “tortuous” progress, let alone a hoped-for “bazooka”.
In August, more bad news swept markets, including missed interest payments by China’s biggest private property developer by sales, Country Garden; a huge loss at rival Evergrande, whose default in 2021 rippled across the sector; and a liquidity crisis at financial conglomerate Zhongzhi.
The government stoked further distrust among investors by suddenly scrapping the publication of youth unemployment data, which had reached record levels, while consumer prices fell. Factory activity was down for a fifth consecutive month in August.
Last week, however, the government stepped up its response. In addition to reducing minimum mortgage downpayments and allowing cuts to existing mortgage interest rates, it increased personal income tax allowances for children’s education and caring for infants and the elderly. On the stock market, policymakers sliced trading fees and took other measures.
“Reflationary policy is ramping up at a pace unseen in recent years,” Morgan Stanley economist Robin Xing said in a research note, adding that the measures were the strongest response since 2018, when China’s economy slowed amid a growing trade war with the US.
Hui Shan, chief China economist at Goldman Sachs, said a rough calculation of the government’s fiscal, monetary and property measures indicated they could boost gross domestic product growth by about 60 basis points.
“Even without a ‘bazooka’, if you do enough of these kinds of piecemeal easing measures, there’s still a chance you will stabilise the economy and have an impact on growth,” said Shan.
But she cautioned: “Investors are not completely convinced yet; people are looking at property transaction data to see if it really translates into stronger sales and activity.”
Much will depend on buyers’ price expectations, analysts said. With speculative activity subdued by the downturn and market oversupply, as well as China’s already high home ownership rates and weak demographic outlook, most demand will come from upgrades or further urbanisation.
“Price expectation is one area that is perhaps holding back buyers,” said Shan.
Faster urbanisation will depend on further reform of hukou, China’s tightly controlled household registration system that entitles certain urban residents rights to city services. While some cities are relaxing hukou, the process is complicated and highly political.
Neumann raised the possibility of future mortgage rate cuts and purchase incentives such as tax cuts for buyers, adding that authorities would fine-tune the measures. “If they don’t get traction, you do more,” he said.
“A lot of this is about signalling to potential buyers that actually, the government will do whatever it can to stabilise housing prices.”
Property stocks rose this week after Country Garden avoided a technical default by meeting interest payments on its dollar bonds.
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But even if the property market stabilises and cyclical growth returns, the government will need to undertake a host of reforms to replace the growth engine provided by real estate and put the economy on a more sustainable track, said Xing.
Global banks have cut economic growth expectations for 2023 below the official government target of 5 per cent, itself the lowest mark in decades.
Reforms are badly needed in politically tricky areas such as social welfare spending, which needs to be increased to encourage consumption, and restructuring debt-laden local governments and their finance vehicles.
In the meantime, the property market in cities such as Beijing remains depressed. In an outlying district of the capital, Ye put his parents’ home on the market in April. But five months and one price cut later, it remains unsold.
“If it doesn’t sell, that’s it, I’m not cutting the price anymore,” he said.