Late last week, China introduced a rescue package of broad measures aimed at supporting the country’s ailing property sector. Will this be enough to achieve stability? Private banks sound off on the outlook for the housing market.
On Friday, Beijing unveiled a property rescue package that includes lower down payment ratios, a scrapped mortgage rate floor and a plan by the People’s Bank of China’s (PBOC) for a 300 billion yuan ($41 billion) relending facility to support state-owned enterprises (SOE) to purchase of unsold homes.
This is the most forceful move that authorities have introduced to support the market. Nonetheless, private banks remain cautious about the outlook.
Gargantuan Inventory
The impact from buying up the inventory of unsold homes is expected to be limited. According to a Barclays research report, China has an estimated 28 trillion yuan of unsold properties.
«The new property measures are unlikely to deal with the full overhang of unsold homes given the PBOC’s new facility’s initial size,» said Bank of Singapore chief economist Mansoor Mohi-uddin in a note. «But the aid is likely to be scaled up if it proves successful.»
Weak Sentiment Unsolved
Moreover, even if buying up unsold homes proves to have a meaningful impact, sentiments from buyers remain weak.
«Securing adequate funding remains a key question, and it is unclear if this will be sufficient to restore consumer confidence and draw buyers back into the market,» according to a note by UBS Global Wealth Management’s chief investment office.
«The issue in first-tier cities is weak sentiment, not overcapacity […] especially in good school districts and upper middle-class areas,» commented UBP senior economist Carlos Casanova in a separate note.
New Potential Risks
Aside from the risk of the rescue package not meeting intended objectives, there could also be new risks introduced into the system even if successful.
«These funds are aimed at a small sub-segment of the market, specifically very problematic inventories in third-tier cities with limited ability to provide jobs and accommodate migrant workers. The policy effectively removes this problem,» Casanova noted. «However, it will result in other issues, such as capital misallocation and weakening fundamentals for SOEs and state banks.»
Hopes for Bottoming Market
Despite the uncertainty, private banks are optimistic about a possible turnaround later this year. UBP believes a soft landing of the real estate sector «might be achieved» in the second half of 2024.
«If these efforts do bear fruit on both demand and supply, we could see the property market bottom out earlier than our original estimate of the fourth quarter of 2024,» UBS added.
