Chen Jian, a 35-year-old in the city of Wuhan, is one of many victims of China’s property crisis. He bought an apartment in 2020, but the developer behind it collapsed, leaving him and his family unable to move into an unfinished home.
Across China, an industry that contributes more than a quarter of economic growth has languished for more than a year, mired in construction delays after many developers ran out of cash. Now, a government support package unveiled over the weekend has provided a rare glimmer of optimism for those caught up in its woes.
“I hope the new measures can work out a solution for us,” said Chen. “We are under great pressure.”
The 16 measures, signed off by the central bank and the main banking regulator, require banks to roll over their loans to the property sector, providing builders with more time to complete unfinished projects. They also offer fundraising and exit plans for unsold apartments.
In addition, banks are encouraged to give homebuyers more time to repay their mortgages. In China, where apartments are often purchased before they are completed, the crisis has led to mortgage payment boycotts.
Although it falls well short of a bailout, the government’s new package — in an environment where the economy has also struggled under zero-Covid restrictions — has had an immediate impact on sentiment.
“I think this is a turning point for the market,” said Michelle Lam, greater China economist at Société Générale, who described the measures as a “housing rescue package”.
“We should expect a rebound in housing sales and investment from here onwards, especially in the second half of next year,” she said.
Tao Wang, chief China economist at UBS, agreed. “Senior policymakers have taken a more decisive step in easing financing to the property sector,” she said. “The latest move reaffirms our view that property sales and starts should stabilise in the next few months.”
“We therefore see property being much less of a drag to GDP growth in 2023,” she added.
China’s property crisis, which blew up last September when developer Evergrande defaulted on its international debts, has taken a severe toll on the economy. In October, Wang notes that property sales fell 23 per cent year on year, while land purchases by developers more than halved. GDP added 3.9 per cent in the third quarter, well short of a 5.5 per cent annual target that was already the lowest set by the authorities in decades.
Still, the new measures are not a clear pivot from the government’s existing approach, according to Wang Qi, chief executive of fund manager MegaTrust Investments in Hong Kong. “China’s fix for the current situation is consistent from day one, starting with the Evergrande default,” he said. “The top priority is to get construction rolling and to deliver off-plan homes.”
Richard Xu, an analyst at Morgan Stanley, said the notice from the People’s Bank of China and the China Banking and Insurance Regulatory Commission was simply putting into formal terms what banks had already been told to do. The measures could help to buy time, he said, but were not necessarily intended to stimulate a major rebound.
Lam at SocGen agreed this did not necessarily change the long-term outlook: “Even if we see a rebound in housing sales next year, a sustained recovery is not likely,” she said.
“We still need to face the transition of the growth model to become one that’s less dependent on housing demand, We know that the policymakers just want to support structural demand, not speculative demand”.
Since a previous property crunch in 2015, authorities in China have emphasised that housing is for “living in” rather than for speculation. At last month’s Communist party congress, there was little mention of the challenges in the sector. Local governments, which have relied heavily on land sales to developers to finance their spending, remain under severe pressure.
Consumer spending has also been hit. Retail sales turned negative year on year in October. Consumption in China is closely tied to the housing sector — both in terms of confidence and in the purchases of appliances and other items that come with a new home. Iris Pang, chief China economist at ING, noted that sales related to moving into a new home, namely consumer electronics, decorations and furniture, contracted 14.1, 8.7 and 6.6 per cent respectively last month.
“I think household confidence will be restored eventually,” said SocGen’s Lam.
However, uncertainty continues to weigh on potential buyers. One 30-year-old, who asked to be referred only by the name Sun, said she had been thinking of buying a flat for the past two years but put off her purchase because she felt the market was getting worse.
She saw the new measures as helping the development of new apartments, rather than impacting existing buildings.
“The economy has not bottomed out, and I feel that the lowest point may be the second quarter of next year,” she said. “I’ll wait until then.”
Additional reporting by Wang Xueqiao in Shanghai