Troubled realty market eyes slow, stable rebound as green shoots sprout on policies

Experts tracking China's debt-laden property industry generally adopt a cautiously optimistic tone, but one thing they unhesitatingly agree is that central and local governments' measures have laid a solid foundation for a market recovery, if not a fresh boom.

That, in itself, is remarkable because not so long ago, fears that an industry meltdown could affect the larger economy were widespread. But, beginning this year, various measures have helped stabilize the property market.

According to data from the Zhuge Real Estate Data Research Center, more than 210 Chinese cities adjusted their property policies 420 times from Jan 1 to Sept 25. Their steps ranged from offering subsidies to lowering down payments and reducing interest rate for first-home buyers. All were targeted at driving rational demand for homes for self-use.

By the end of September, a number of government departments had issued several new measures to lower cost of home purchases and boost demand, a move that, it is widely believed, would help lift market sentiment.

"All the measures would help activate the home market. It's almost certain that the second half would create a different situation, especially in first-tier cities," said Chen Sheng, president of the China Real Estate Data Academy.

"As policy relaxations consistently beef up market sentiment, we believe the most difficult time is behind us. Residential sales have bottomed out and the sector is likely on a curve of slow recovery," said Xie Chen, head of research with CBRE China, a commercial real estate services and investment firm.

The hoped-for recovery may take a comparatively longer time, but a month-on-month growth is pretty much on the cards, Xie said.

Lauding the central government's latest stance, officials and industry experts said more efforts are required to maintain the property market's stable and healthy development.

A report submitted to the 20th National Congress of the Communist Party of China stated that by adhering to the principle of "housing is for living in and not for speculation", the country will move faster toward building a housing system where multiple suppliers and various channels of support would encourage both rentals and homebuying.

"From the central government's perspective, the housing system implies both a market system and a government-subsidized system. And from the perspective of local governments, their policies should suit their own conditions and closely follow the guideline of 'housing is for living in, not for speculation'," said Xie of CBRE China.

On Sept 29 and 30, the People's Bank of China, the country's central bank, the China Banking and Insurance Regulatory Commission, the Ministry of Finance, the State Administration of Taxation and other departments concerned announced a number of macro-level policies to support the real estate sector.

For instance, the Ministry of Finance and the State Administration of Taxation decided to refund taxpayers who purchased residential properties within a year of selling previously owned residential assets. For its part, the PBOC announced a 0.15 percentage point cut to interest rate on housing provident fund loans availed to buy first homes. The country's financial authorities loosened the lower limit for mortgage rates for first-time homebuyers in some cities.

An S&P Global (China) Ratings report by analysts Zhang Renyuan and Ren Yingxue noted that these macroeconomic policies reflect the central government's resolve to support the steady development of real estate and maintain market stability, which can in turn bolster market confidence.

The policies are an extension of the "housing is for living in, not for speculation" principle, and aim to activate firm demand for residential housing as well as demand for improvements. They will help reduce transaction costs and lay the ground for a rebound in demand for real estate. At the same time, these policies also complement the regional "one city, one policy" stance on regulation, the S&P report stated.

Shaun Brodie, senior director and head of occupier research of China at Cushman & Wakefield, said that solving funding issues is now a top priority for a number of residential real estate enterprises. Therefore, central and local government measures not only assist residential property buyers but also bolster the residential real estate industry in general, steering it toward a stable development path.

In fact, previous measures have already taken effect and helped stabilize demand in first-tier and major second-tier cities, said Sheng Xiuxiu, residential sector research director at JLL China.

For instance, believing the home market has bottomed out and the timing to be good for buying a home, Zhou Shi, 28, a white-collar worker at a rental housing company in Shanghai, recently moved out of a rented apartment that had been her home for several years. Zhou is now a proud homeowner, having bought a pre-owned flat in Shanghai's sought-after Jing'an district for 4.5 million yuan ($621,032).

"I used to pay more than 5,000 yuan toward the monthly rent for the old apartment. Now, that money goes toward the mortgage, and I get to own this flat," said Zhou.

The PBOC's third-quarter survey published on Oct 9 showed many other prospective homebuyers such as Zhou are likely to make a similar choice. In the survey, 17.1 percent of the respondents said they have plans to buy homes in the coming three months. In the second quarter, the corresponding figure was 16.9 percent.

Among the 20,000 urban depositors from 50 Chinese cities polled, 14.8 percent of them expected home prices to rise in the last quarter, while 56.6 percent believed there will be little change in home prices.

"With constant improvements made to policies, and given the efforts to ensure timely delivery of residential projects, we believe market confidence will recover further," Sheng of JLL China said.

The residential property market is beginning to see some green shoots amid the overall market downtrend, some experts said.

The four top-tier cities outperformed lower-tier cities in home transactions, with their average new home prices growing 2.7 percent year-on-year in September, NBS data of Oct 24 showed. Meantime, second-tier cities such as Hefei in Anhui province, Chengdu in Sichuan province and Hangzhou in Zhejiang province all reported year-on-year as well as month-on-month growth, which contributed to their good economic fundamentals, industry experts said.

Commercial property sales declined at a slower pace, both in terms of floor area and value. During the January-September period, some 1.01 billion square meters of commercial real estate was transacted, down 22 percent year-on-year, lower than that of the January-August period (down 23 percent year-on-year). In terms of value, sales dropped 26 percent to 9.94 trillion yuan during the nine-month period — milder compared to the almost 28 percent decline in the first eight months.

Despite such positive changes, the overall downtrend has led to calls for further efforts to maintain the property market's stable and healthy development, said Fu Linghui, spokesperson of the NBS and director-general of the Department of Comprehensive Statistics of the NBS during a State Council Information Office news conference in September.

"Given this situation, all interested parties are trying hard to find new business models and introduce new policies to ensure market stability. In addition, given market fluidity, these measures need to be constantly modified and further validated, which will require continuous further efforts by all the parties concerned," said Brodie of Cushman& Wakefield.