China’s property problems are getting worse and need Beijing’s support

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Apartment blocks under construction in Nanchuan district of Xining, Qinghai province, China.

Qilai Shen | Bloomberg | Getty Images

BEIJING – China’s real estate market, which is a large part of the country’s economy, needs more government support to prevent further deterioration, analysts said.

Existing home prices fell in October the most since 2014, and outstanding home loans fell for the first time in history, said Larry Hu, chief economist at Macquarie, in a note on Friday.

That shows more slack on both the demand and supply side.

The policy so far has focused on increasing demand. But the government has not “addressed the most important issue: credit risk associated with developers,” according to the Macquarie report.

“Without a lender of last resort, a self-fulfilling confidence crisis could easily occur as falling sales and rising default risks reinforce each other,” the report said. some large developers have seen their credit risks rise rapidly recently.”

China's property market: There is a 'self-fulfilling negative feedback loop,' says Goldman Sachs

Beijing has sought to reduce property developers’ high reliance on debt to fuel growth, while taming rising home prices that have made buying an apartment in cities too expensive for many young households. Chinese.

UBS analysts estimated that real estate and related sectors now account for about 22% of China’s gross domestic product, down from about 25% levels seen in recent years.

From November 2022, Chinese authorities have implemented a number of measures aimed at improving developers’ access to finance and reducing mortgage rates.

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Markets ‘too optimistic’?

Recent figures show that problems in the property sector are only getting worse.

The average price for existing homes across 70 major cities fell 0.6% in October from the previous month, compared with a 0.5% fall in September, with China’s biggest cities decline, Nomura analysts said in a report last week citing official data.

That’s a concern because cities are expected to have more stable demand for homes because jobs are available.

“China’s property sector is still not at a low level,” the report said. “Markets appear to have been a little too optimistic about the property stimulus policies over the past two months.”

More high quality marks

Politicians in the last few days have tried to identify more support.

The People’s Bank of China announced late Friday that it was holding a meeting with other financial regulators to allow “normally operating” property developers, among other signs of support. The authorities also requested that affordable housing be developed, according to the label.

“The meeting should help avoid an unwanted contraction of credit expansion in the last two months of the year, as financial institutions try to enter new loan deals into the new year to get off to a strong start designed,” Citi analysts said in a Monday report.

“There will continue to be an ongoing emphasis on supporting LGFV property financing and debt resolution [to help] prevent risks [from] continues to grow,” the report said.

Shares of several major property companies closed higher on Monday, with the developer Swedish increased by 5.9% in Hong Kong trading.

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