China is expected to take new measures and provide additional funding to clear unoccupied housing to stimulate the property market. At a meeting of the central government in early June it was stressed that the development of the real estate sector has a direct bearing on the well-being of the people and the overall stability of the economic and financial system. The meeting called to establish new models for real estate development, improve both the market-oriented and government-subsidized housing, and reform fundamental institutional frameworks. The meeting’s emphasis on inventory clearance, after the adjustments recently made to the down payment ratios for first homes in most cities, indicates the government’s recognition of the urgent need to address the existing housing surplus, analysts said. The minimum down payment ratios for mortgages were revised in mid-May, setting them at no less than 15% for first-home buyers and 25% for second-home buyers. The country’s central bank also further lowered mortgage interest rates, as well as that of the housing provident fund. The new policy has slashed the minimum down payment ratio for homebuyers to an unprecedented low as mortgage interest rates are already at historically low levels, said Yan Yuejin, Director of the Shanghai-based E-house China R&D Institute.
According to the China Real Estate Information Corp, new home sales in 30 key cities, including Beijing, Shanghai and Tianjin, reached a total of 10.81 million square meters in May. This represents a 4% increase over the previous month and a 23% growth compared to the average of the first quarter. While policy measures led to a recovery in certain key cities, the ongoing efforts to clear housing inventory still face significant pressure, Yan said. According to the E-house China R&D Institute, the inventory of new residential properties in 100 major cities across China reached 50.02 million sq m. in April and the average time required to clear this inventory stood at 26.5 months, doubling the reasonable threshold and hitting a historical peak.
The persistence of high inventory levels and prolonged clearance periods indicates that further efforts may be required to achieve a more sustainable market, said Guan Rongxue, Senior Analyst at the Zhuge Real Estate Data Research Center. This is not the first time that the importance of inventory clearance has been emphasized. A tone-setting meeting on April 30 held by the Political Bureau of the Communist Party of China, initiated new efforts to reduce the existing housing inventory and promote a more balanced market. The Ministry of Natural Resources put cities where the clearance period for residential properties exceeds 36 months on notice, and suspended new land auctions for residential development. Various cities are exploring the integration of inventory clearance and the promotion of affordable housing. The People's Bank of China (PBOC) has provided CNY300 billion to 21 financial institutions to lend to state-owned enterprises so they can buy unsold apartments that have already been built as affordable housing. So far there have been no significant adjustments to policies regarding tax and fee incentives for homebuyers or the special deduction of personal income tax for housing loans, but this may be included in future measures to stabilize the real estate market, the China Daily reports.
S&P Global and Fitch Ratings have cut China’s property sales forecasts for the second half of 2024, but others say positive signs are emerging in the crisis-hit sector. S&P Global expects that homebuyer confidence will remain lackluster, and demand, especially in lower-tier cities, will not recover sufficiently. “We expect that in the second half of 2024, China’s property sector will continue to decline despite the new round of policies, with sales expected to drop 15% compared to last year, which is lower than the projected 5% drop at the end of 2023,” said Zhang Renyuan, Director of Corporate Ratings at S&P Global (China) Ratings.
China’s home prices saw their steepest decline in close to a decade in May, with new home prices in 70 cities sliding 0.71% from April, while prices of pre-owned homes also fell 1% on a monthly basis. Fitch Ratings made a similar cut. It now expects new home sales to decline by up to 20% to CNY8.3 trillion in 2024, with sales expected to drop 10% to 15% in gross-floor-area terms to between 800 million and 850 million square meters, the South China Morning Post adds.
