A total of 36 Chinese cities introduced policies to support the property market in the first 15 days of May, according to incomplete statistics, indicative of policy relaxation to shore up home sales. But analysts said that the downturn in real estate is significant, and it can only be solved by addressing the sector's financial structure and curbing the pandemic.
A total of 20 cities in China have moved to cut their mortgage rates to as low as 4.4%. First-, second- and even third-tier cities were among the 20, including Guangzhou, Shenzhen, Tianjin, Jinan and Fuyang. The lower rates will significantly reduce the monthly housing loans payback costs of home buyers. For example, on a CNY1 million loan with 30 years of equal principal and interest repayments, the monthly payment will be reduced by CNY484 in Guangzhou. Among 70 large- and medium-sized cities, 47 reported a month-on-month decrease in new house prices in April. Prices of commercial houses in first-tier cities saw a slight increase of 0.2% month-on-month. But prices in second- and third-tier cities fell in varying degrees. The 31 second-tier cities tracked by the NBS reported a dip of 0.1% on average in new home prices in April, but up 1.0% from a year ago. In 35 third-tier cities, new home prices slipped 0.6% month-on-month and 1.5% year-on-year.
China recorded a sharp annual drop in home sales from January to April. Commercial home sales stood at CNY3.78 trillion, down 29.5% year-on-year, with residential housing sales down 32.2%, according to the National Bureau of Statistics (NBS). Investment in real estate development also went down by 2.7% year-on-year. “We can see that real estate investment did not slow down much, but sales are declining, as supply exceeds demand. The sector will face fierce competition in the short term, and housing prices may show a downward trend in the medium term,” Pan Helin, Director of the Research Center for Digital Economics and Financial Innovation affiliated with Zhejiang University's International Business School, told the Global Times. He said that even with policy relaxation or government supportive measures, downward pressure in the real estate industry is significant. China's central bank and banking regulator cut the mortgage rate for first-time house buyers by 20 basis points off the benchmark loan prime rate (LPR) on May 16. This policy will enable local mortgage rates to be as low as 4.4%, which is very favorable, Yan Yuejin, Research Director at the Shanghai-based E-house China R&D Institute, said. Many cities have released supportive measures to boost property sales. One of the latest examples is Langfang, in Hebei province, where the interest rate on first-home mortgages from some banks dropped from 5% to as low as 4.6%, which is the same as the LPR rate for five and more years. Langfang is only 30 kilometers away from Beijing Daxing International Airport. In Changsha, Hunan province, a home bought and used for rental will not be included in the calculation of family housing units. Residents there buying a second home cannot enjoy favorable rates.
Some analysts said that risk prevention in the real estate industry should be put higher on the agenda. The most critical task is to optimize the credit structure. The new measures will not have a big effect in the second quarter, Tian Yun, former Vice Director of the Beijing Economic Operation Association, told the Global Times. “After all, supply chains across the country have not been fully restored. Under the current situation, the demand to buy a house will not be increased by the reduction of mortgage rates. But if the economy recovers significantly in the next two months, demand will pick up significantly in the third and fourth quarters,” Tian said.
Agencies expect sales to pick up after June. “The contribution of real estate and related industries, such as furniture and home appliances manufacturing, to China's GDP is more than 20%. But real estate's share of the national economy fell from the second quarter in 2021,” Tian said. “The declining contribution of real estate to GDP growth was partly replaced by exports, partly offset by the upgrading of domestic middle- and high-end industries, and by changes in the consumption structure,” Tian added, as reported by the Global Times.
Since the beginning of this year, property policies have been optimized over 200 times in more than 100 Chinese cities. The trend had become very pronounced in April, data from the China Index Academy showed. Following nationwide adjustments to home loan interest rates, more local governments are expected to come up with new measures to lower the cost of rational home buying, create better conditions for stimulating market transactions and boost reasonable demand, said Chen Wenjing, Deputy Director of Research at the China Index Academy. Investment in China’s property development edged down 2.7% year-on-year to CNY3.9 trillion in the first four months. Investment in residential buildings fell 2.1% year-on-year to about CNY2.95 trillion, the China Daily adds.
