China’s outstanding mortgage loans dropped for the first time on record, according to the People's Bank of China (PBOC), underscoring the urgency for the government to take more measures to prop up the property sector. Personal mortgage loans shrank 0.7% in the second quarter from a year earlier to CNY38.6 trillion, according to the quarterly lending report of the PBOC. That marks the first quarter a year-on-year decline has been registered since central bank records began in 2004. In the first quarter mortgage loans rose 0.3% year-on-year. Homebuyers have been taking fewer loans since the first quarter of 2022 as China’s zero-Covid restrictions curtailed property sales, denting demand for borrowings. Loans continue to shrink even after the economy emerged from zero-Covid this year, as the economic slowdown and growing unemployment saw a reduction in large purchases such as homes.
The unprecedented decline has sparked fears a further deterioration in China’s property market will compound China’s already faltering growth outlook and make stemming the slowdown more challenging. While the industry has weathered repeated crackdowns by the government over the past two decades and its contribution to GDP has waned, it remains a critical component of China’s USD18 trillion economy. The property market and related sectors from home appliances to building materials make up about a quarter of the nation’s gross domestic product (GDP).
“New-home sales remained sluggish in July. The recovery outlook now remains uncertain and the market is awaiting policies that will boost the sector,” said Yang Zhenyu, Analyst at China Merchants Securities. Housing sales have stagnated after a brief rebound earlier in the year spurred by China’s reopening of the economy, with the downtrend spreading even to the bigger cities. Sales of new homes dropped 5.3% to almost 600 million square meters in the first half, while property investment fell 8% from a year earlier to CNY5.9 trillion. At a meeting of the Communist Party's Politburo, the slogan “housing is for living, not for speculation” was not repeated for the first time at a high-level conference in five years, fanning speculation that the long-standing restrictive measures imposed in tier-one and tier-two cities will be eased.
The Ministry of Housing and Urban-rural Development called a meeting with key developers, telling them that the government is considering lowering both mortgage funding rates and down payment ratios. The Hang Seng Mainland Properties Index jumped by 13% last week, the steepest weekly gain since December. Chinese developers trading in Hong Kong topped the list of the best performers on the Hang Seng Index for the week, with Longfor Group Holdings surging 27% and Country Garden Holdings rallying 22%. Still, a sustained rebound in the property market is unlikely, given the many headwinds the sector faces, such as the growth slowdown and shrinking personal savings, according to Yang at China Merchants Securities. The fate of the property market largely hinges on government policies and homebuyers’ confidence, according to Raymond Cheng, Managing Director of property management at CGS-CIMB Securities. He expects some big changes in the strict purchase restrictions that currently prevail in the biggest cities. “Home-buying sentiment was quite weak at the end of June, this explained why authorities need to do more,” said Cheng. “And homebuyers want to wait in anticipation of further price declines,” he added, the South China Morning Post reports.
