China is likely to roll out more measures before long to stimulate demand for housing, but recovery in the all-important property market is unlikely for another year.
Nationwide urban real estate prices rose only 1.6% in the year to October, the weakest rise since Beijing started publishing the data in 2005, and economists expect prices soon to be in outright decline despite steps to boost the economy. “The immediate impact of the stimulus policies is limited,” said Li Zhanhong, vice president of Jinke Group, a developer headquartered in the western city of Chongqing.
China lowered mortgage rates, reduced down payments and cut transaction taxes on October 22 to make it easier for people to buy homes. Then on November 9 it unveiled a broad package to stimulate domestic demand with a headline price tag of CNY4 trillion. ($586 billion). Comments a day later by Premier Wen Jiabao raised expectations that additional steps could emerge when top officials gather to chart economic policy for 2009.
Wen instructed provincial officials to “properly guide and control” the real estate sector, which he described as a pillar industry critical for everything from steel to home appliances. “That’s the strongest signal yet, which says that the government is going to support the real estate market,” said Lu Zhengwei, chief economist of Industrial Bank in Shanghai.
Analysts say China still has plenty of policy leeway to aid a sector that makes up a quarter of China’s fixed asset investment, for example by further cutting taxes and mortgage rates. “More forceful measures will come out during the economic work conference later this month,” said Fan Xiaochong, vice president of the Beijing-based Sunshine 100 Real Estate Group.
The problem for developers is that policies in the pipeline, notably a plan by the Ministry of Housing and Urban-Rural Development to spend CNY900 billion on affordable housing over three years, are likely to lower average house prices. Stephen Green, head of China research at Standard Chartered Bank in Shanghai, said the laudable aim was to provide subsidized housing for low-income migrant workers.
The initiative would also stir demand for cement, steel and construction workers. But he said it could face opposition from developers and local governments. Low-cost housing is less profitable than high-end developments and, despite market segmentation, will augment overall supply in a market that is already overstocked. “The developers -- a considerable political force in Beijing, some believe -- will not be fans since the policy runs the risk of bringing down urban house prices,” Green said in a report.
Mingchun Sun, an economist for Nomura in Hong Kong, judges that oversupply is so great that prices could fall 20% from peak to trough, but by no more than 30%. Sun is positive in the long term given China’s urbanization and rising incomes, but he said in a report that a price correction that started in early 2008 could last about two years.
With buyers holding off, Vanke, China’s biggest listed developer, reported a 35% fall in property sales in October from a year earlier, the fifth monthly decline in a row. “Whatever measures the government takes, the ultimate goal is to boost transactions, not prices,” Li with Jinke Group said. He thought it would take developers three to six months to sell their current stock of homes.
RISKS RISE, PRICES FALL
Forecasts that the property market will start to revive by this time next year could prove to be optimistic in light of October indicators pointing to a sharp slowdown in growth, said Lu, the Industrial Bank economist. To get the market moving, he recommended that the government buy up existing apartments as part of its investment in public housing.
Some local governments, including those in Beijing and Shanghai, have already said they will do just that. They have also raised the amount that households can borrow at subsidized rates from city-run housing provident funds. For its part, the central bank has abandoned its limits on new loans and adopted an “appropriately easy” monetary policy.
But Chen Guoqiang, a professor at Peking University, is among those who believe big banks will respond warily. “That does not necessarily mean easy credit to the property sector,” said Chen, who heads the university’s real estate institute. Speaking at the weekend, Jiang Dingzhi, a vice-chairman of the China Banking Regulatory Commission, said the risk of mortgage delinquencies was growing.
As for developers, they will be scrambling for cash as the year draws to a close to pay for land they have already bought and to pay back bank loans. “Developers may possibly resort to a fresh round of price competition at the year end,” Jinke’s Li said. (Reuters)