Chinese property developers experienced volatility on Monday as investor sentiment wavered over Beijing's recent measures aimed at stabilizing the beleaguered real estate sector. Despite being hailed as "historic" steps, the efforts appeared insufficient to instill confidence and drive a sustainable recovery in the market. The Hang Seng Mainland Properties Index dipped 0.7%, erasing some of the gains accrued earlier in the month following the Politburo's pledge to coordinate efforts to reduce housing inventory.
Embattled state-backed developer China Vanke saw its shares ease 0.2% after an initial surge of 6.4% in the morning session. Other developers, including Shimao Group, R&F Properties, Kaisa Group, and KWG Group, suffered significant declines, each losing over 10% of their value. This decline followed China's unveiling of measures on Friday to facilitate up to 1 trillion yuan ($138 billion) in funding and to ease mortgage rules, with local governments set to purchase some apartments.
Central to these measures, the People's Bank of China announced the creation of a 300 billion yuan ($41.49 billion) relending facility for state-owned enterprises to purchase completed and unsold homes at "reasonable prices" for affordable housing. The central bank expects this relending program to generate 500 billion yuan in bank financing. However, analysts expressed skepticism about the impact of these measures given the scale of the challenges facing the sector.
Larry Hu, chief China economist at Macquarie, noted, "Given its limited size and the various challenges in execution, it alone is unlikely to solve the problem." He emphasized that while the government's decision to act as a buyer of last resort is an important step, the financing on offer pales in comparison to the trillions of yuan worth of housing inventory across the country. Official data showed 391 million square meters of new housing for sale from January to April, equivalent to 6.6 Manhattans, underscoring the enormity of the task at hand.
Bank of America's head of Greater China property research, Karl Choi, highlighted that the social housing programs are only mandated in larger cities. He estimated that the 500 billion yuan in funding could purchase up to 15% of inventory in tier-2 cities at a deep discount. Macquarie economists pointed out that achieving the government's policy goal of clearing housing inventory in 18 months, versus the current 28 months, would cost an estimated 2 trillion yuan.
The government's previous measures, including a 100 billion yuan facility introduced in January 2023 for eight pilot cities, have seen limited success. Only around 2 billion yuan have been drawn down by January this year, highlighting the lack of incentives and participation from the market. Local governments, already burdened with approximately $9 trillion in debt, may be reluctant to expand their social housing projects due to low returns. Banks, too, would be hesitant to lend to potentially loss-making businesses.
Goldman Sachs has predicted that it could take up to nine months to stabilize China's property prices if the government launches a full-scale program to reduce inventory. The effectiveness of these measures will largely depend on how quickly and efficiently they are implemented. Despite the supportive stance signaled by policymakers, the key to a property market recovery lies in reviving homebuyer confidence, analysts say.
Li Gen, chairman of Beijing G Capital Private Fund Management Center LLP, expressed doubt about the current market conditions motivating entities to take up the government's measures. "The demand for property is weak with many people concerned about jobs and incomes in the future," he said.
The central bank has also removed a floor on mortgage interest rates and lowered the minimum down payment ratio for first- and second-time homebuyers, aiming to stimulate the housing market further. These steps come as part of a broader strategy to address the issues plaguing the real estate sector, including the large stock of pre-sold, unfinished homes, which Nomura estimated to number around 20 million.
