HONG KONG (S&P Global Ratings) May 21, 2024--China's latest measures to boost the property market could move the needle on homebuyer confidence over the next few months. This is because they widen access to financing and signal a political willingness to stabilize conditions in the market.
"The demand-side nature of the policy support could be effective in stabilizing the residential property market, at least for the next few months," said S&P Global Ratings credit analyst Jay Lau. "Further improvement will rely on homebuyer confidence, policy support, and how well policy boosts are coordinated among government bodies."
The central government will ease financing conditions, including by allowing localities to drop downpayments on first-time homebuyers to 15%, from 20% previously, and is removing the mortgage-rate floor. A similar move was effective in stabilizing sales--at least for a few months when implemented last August after very weak summer sales.
In our view, these demand-side policies will reduce the downside risk on our sales forecast of Chinese renminbi (RMB) 10 trillion to RMB10.3 trillion for 2024. Our forecast assumes a 10%-15% drop from 2023.
Sales fell 28% in the first four months of this year, according to the National Bureau of Statistics. Moreover, sales have also been weak for the top-100 property developers, with a 47% year-on-year slump so far this year. These developers are the key representation of the primary home market.
NOT A PERFECT-FIT FOR ALL LOCAL MARKETS
Besides easing mortgage conditions, China's central banks will also lend RMB300 billion for local governments to buy up completed inventories and use them for social housing. In our view, the idea is to relieve inventory overhang while also meeting social-housing goals.
This RMB300 billion cannot be distributed without further leverage from banks, which could parlay the central bank advance into RMB500 billion.
"The funds would help to tackle excess inventory level but is far from a fix-all. This is because inventories are highest in lower-tier cities, and social-housing needs are the most pressing in higher-tier ones," said S&P Global Ratings credit analyst Ricky Tsang.
Housing inventory is the highest in China's history, at 748 million square meters as of March 2024. Most of the excess inventory sits in lower-tier cities. We estimate about RMB1.7 trillion is needed to destock to a healthier inventory level of around 500 million square meters. This would be comparable to inventory levels between 2018 and 2022.
"In our view, the loans to absorb unsold inventory and convert them into social housing will help Chinese developers on a very selective basis," added Mr. Tsang. "Only completed projects may be acquired--this means distressed developers, whose projects are most likely uncompleted, cannot benefit."
This report does not constitute a rating action.
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| Primary Credit Analyst: | Jay Lau, Hong Kong +852 2533 3568; jay.lau@spglobal.com |
| Secondary Contacts: | Ricky Tsang, Hong Kong (852) 2533-3575; ricky.tsang@spglobal.com |
| Lawrence Lu, CFA, Hong Kong + 85225333517; lawrence.lu@spglobal.com | |
| Media Contacts: | Ning Ma, Hong Kong (852) 2912-3029; ning.ma@spglobal.com |
| Michelle Lei, Beijing + 86 10 6569 2961; michelle.lei@spglobal.com |
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