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China property: ‘underwhelming’ stimulus to fall short of refloating market


“This is a buyer-led market, where I must offer more benefits to lure buyers,” Xiong lamented. In fact, he worries that the new policies reinforce the idea that the market is in a downturn, leading buyers to delay their decisions in case prices plummet further or even more supportive measures rain down.

The property market once accounted for about a quarter of China’s economy but has been high and dry since August 2020 when China’s “three red lines” policy shut the industry’s weakest borrowers out of the capital markets.

To bail it out, authorities on this month reduced down-payment ratios, cut mortgage interest rates and introduced the 300 billion yuan (US$41.4 billion) relending facility, which allows local state-owned enterprises to buy unsold homes they can then offer as affordable housing. They will also be able to buy back undeveloped land from developers.

The policies are widely viewed as evidence that Beijing is finally on the right track to fix the country’s property sector. Anecdotally, the moves have had an effect, as homebuyers in some of the biggest cities rushed to sales offices to scout for deals. For example, viewing requests in Shenzhen on the weekend after the announcement were three times what they were a week earlier, according to property agent Centaline.

However, official data shows China had 391 million square metres of unsold homes as of end-April, the most since 2016. Unfinished or delayed pre-sold homes numbered 20 million at the end of 2022, which would cost an estimated 3.2 trillion yuan to complete, according to an analysis by Japanese investment bank Nomura.

“Will the new funding be enough to return the property market to its glory days? Almost certainly not,” Harry Murphy Cruise, an economist at Moody’s Analytics, said in a note on Monday. The relending funding is “a drop in the ocean” given the scale of unsold stock, he added.

Specifically, the funding could purchase up to 15 per cent of the inventory in tier-2 cities, but only at a deep discount, which is “rather underwhelming” and “will be unlikely to make a notable difference to nationwide housing inventory”, Bank of America analysts said on Monday.

Employees set up model apartments for a real estate sale in Hangzhou, Zhejiang province, in May 2012. Photo: Reuters

More than 1 trillion yuan of capital injection would be needed to reduce the saleable inventory and stabilise prices, Goldman Sachs analysts said in a May 13 report looking at 80 cities. The process could take at least nine months based on past down-cycle run rates, they said.

Simply on a practical basis, some unfinished projects will need a lot of attention, according to Liu Huanhuan, a general manager with Huapai Auction in Shanghai, which specialises in distressed assets. One 17-storey residential building she knows of in eastern Jiangsu province, for example, now sits in the middle of a pond that formed as water collected on the deserted construction site.

“It will be…

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