China’s real estate problems worsen and require support from Beijing

BEIJING — China’s real estate market, which accounts for a large part of the country’s economy, needs more government support to prevent it from deteriorating further, analysts say.

Existing home prices saw their biggest decline since 2014 in October, while outstanding home loans fell for the first time in history, Larry Hu, chief economist at Macquarie, said in a note on Friday. .

This indicates increased brakes on both the demand and supply sides.

So far, policy has focused on stimulating demand. But the government has not “addressed the most important problem: developer credit risk”, according to a Macquarie report.

“Without a lender of last resort, a self-fulfilling crisis of confidence could easily arise as declining sales and increasing default risks reinforce each other,” the report said. “Indeed, some large developers have recently seen their credit risks increase rapidly.”

Beijing has sought to reduce real estate developers’ heavy reliance on debt to fuel growth, while curbing soaring property prices that have made buying an apartment in big cities prohibitive for many young people. Chinese households.

UBS analysts estimate that real estate and related sectors now account for about 22% of China’s gross domestic product, up from about 25% in recent years.

Since November 2022, Chinese authorities have rolled out a series of measures aimed at improving developers’ access to financing and reducing mortgage rates.

Recent figures indicate that the problems in the real estate sector are only getting worse.

The average price of existing homes in 70 major cities fell 0.6% in October from the previous month, compared with a 0.5% drop in September, with China’s biggest cities leading the decline, said Nomura analysts in a report last week citing official data.

This is worrying since large cities are expected to experience stronger demand for housing due to the availability of jobs.

“China’s real estate sector has not yet reached its lowest point,” the report said. “The markets seem to have been a little too optimistic about the real estate stimulus policies of the last two months.”

Policymakers have scrambled in recent days to show more support.

The People’s Bank of China announced late Friday that it had held a meeting with other financial regulators to allow loans to property developers that are “operating normally,” among other signals of support. Officials also called for the development of affordable housing, according to the release.

“The meeting is expected to help avoid an unwanted contraction in credit provision in the last two months of the year, as financial institutions attempt to time new loan transactions into the new year in order to achieve a good departure,” Citi analysts said in a report Monday.

“The continued focus on supporting LGFV’s real estate financing and debt resolution will continue to (help) prevent escalation of risks,” the report said. “As fragile growth continues to require an accommodative monetary environment, the meeting is moving in a necessary direction as more support is still needed to boost private sector confidence.

Shares of several major property companies closed higher on Monday, with developer Sunac rising 5.9% in Hong Kong.