China’s real estate measures boost sales, but only in big cities

By Liangping Gao and Marius Zaharia

BEIJING/HONG KONG (Reuters) – China’s latest housing support measures have boosted transactions in its biggest cities, but activity in smaller locations is struggling to take off, pointing to more difficulties ahead for most of the country’s property market. country.

On May 17, China cut minimum mortgage rates and down payments and instructed municipalities to buy unsold apartments to turn into social housing, prompting dozens of announcements from cities easing policies under the new guidelines. .

Small samples of transaction data and interviews with 10 real estate agents across China show that the measures have had an uneven impact across the country, reviving demand in megacities like Beijing and Shanghai but not in smaller locations.

This adds to concerns fueled by weak house price data released on Monday that the recession may have to continue, especially in smaller towns where the amount of oversupply is much greater than in cities. larger, keeping pressure on policymakers to extend more support.

The depressed real estate sector, which contributed almost a quarter of gross domestic product before going into crisis in 2021, remains a major drag on the $18 trillion economy.

“For large cities, policies are more effective because demand and supply are more balanced,” said Zhang Zhiwei, chief economist at Pinpoint Asset Management.

“Many of the small cities have a long-term structural oversupply problem that is more difficult to resolve. It will take longer.”

Analysts say Beijing needs to direct more funds to smaller city governments to reduce inventories and stabilize those markets, but most expect gradual support rather than any big-impact measures as authorities are wary of bailing out developers. wasteful.

Data from property research firm China Index Academy showed that the average daily transaction for used homes between May 18 and June 5 was 27.7% higher than the April average in Shanghai and 8.10% higher in Beijing. New home transactions fell 0.2% and 6.4%, respectively, with agents saying older apartments in Beijing and Shanghai typically sell faster because they are in better areas.

In Shanghai, an agent said apartment applications have tripled since the city relaxed down payment requirements on May 27, and have recorded 700-900 sales a day, up from 500 previously. Another agent said home viewings were up 60%.

An agent in Beijing said viewings in the capital had also increased “a lot”.

“Basically all the agents are full,” said the agent in the capital, who only gave his surname Chen.

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‘SOMETHING BROKEN’

The China Index Academy has not published data for smaller cities, but separately released transaction data for the period June 8-10, showing a 16% year-on-year decline for a group of 30 cities, including the largest.

This suggests that sales in smaller cities are still weak and buyers are still worried that cash-strapped developers may not be able to complete projects.

“Smaller cities are doing a lot to encourage people to buy more homes and it’s just not working,” said Christopher Beddor, deputy director of China research at Gavekal Dragonomics.

“Something is broken. I think something is with developers: You can’t have a turnaround in the housing market without persuading home buyers that they will receive pre-sold units from developers.”

Beddor says the housing market will continue to be a drag on the economies of these small towns in the long term, weighing on tens of millions of consumers and posing risks to small regional banks, which are often highly exposed to the sector.

Smaller cities have lowered mortgage rates and minimum down payments more than larger ones, but even the most aggressive cities have struggled so far to revive demand, agents said.

Jiaozhou, a city of less than 1 million people on the east coast, broke the new 15% down payment limit for some buyers into two 7.5% payments up to two years apart to accelerate demand from those who needed a apartment, but they didn’t have enough savings. . Shanghai and Beijing have set minimum down payments at 20% and 30%, respectively.

But real estate agents in Jiaozhou failed to notice the impact.

“My workload is pretty much the same as before. We may receive more inquiries, but few people actually book guided tours of properties,” said a broker who gave only her surname Ma.

Authorities in the central city of Changsha, home to about 10 million people in debt-ridden Hunan province, have told developers to refund deposits unconditionally if buyers change their minds before finalizing the transaction, hoping to encourage those who are room to make proposals.

“Nowadays, few people want to buy houses. Customers think the new policies are adopted precisely because the market is not good,” said a Changsha agent surnamed Xu.

Goldman Sachs analysts expect more easing measures in the coming months.

“However, considering the persistent real estate weakness related to lower-tier cities and private developers, such easing measures can only lead to an L-shaped recovery in the sector in the coming years,” they wrote in a note on Monday.

($1 = 7.2559 Chinese yuan)

(Additional reporting by Beijing newsroom; Editing by Shri Navaratnam)