China’s average daily home sales during the public holiday plummeted 47 percent compared to the previous year’s May Day holiday, new data from private research firm China Index Academy (CIA) revealed on Monday.
In addition, they were roughly 30 percent lower from the bustling pre-pandemic levels seen over the same holiday period in 2019. Home sales were down in 19 of 22 surveyed cities during the five-day May Day compared to the same period of 2023, and more than 60 percent in megacities such as Guangzhou and Shanghai.
The research firm said that “the new housing market is still facing adjustment pressures,” adding that there is potential for lowering the down payment ratio, reducing mortgage interest rates, as well as transaction taxes and fees.
The second-hand housing market, however, witnessed a certain degree of positive demand in the short term due to the “price for volume” strategy and current “trade-in” activities, although sales declined by 12 percent compared to the previous year, which was “still better than that of new houses.”
The “price for volume” policy in Chinese house sales refers to an approach in which homeowners and brokers choose to set lower prices to maximize sales volume, particularly in the secondary market. This strategy is commonly used in situations when there is excess supply and insufficient pricing advice for new projects.
The term “trade-in” in the context of property in China typically refers to activities where property developers and buyers engage in transactions that involve exchanging properties as part of the payment for the new home or, as a deal.
In 2021, China’s property market experienced a crisis with some of the largest developers defaulting on debts and plummeting sales numbers. This was due to long-standing issues such as mounting debt and unsustainable growth strategies.
The Chinese authorities responded by easing restrictions on debt refinancing and loans to stabilize the market, but analysts say many of the policies are piecemeal in nature or have a limited, short-term impact. China’s leadership is also indifferent about the property sector’s downturn over the past two and a half years, they add.
“We view the tone on the property sector set at the Two Sessions as negative. It seems to us that the central government is still not too concerned about the property sector’s downward spiral. We thus expect the sector’s fundamentals to remain under pressure amid limited potential policy support,” stated a note from Nomura.
Wider Side Effects
Although “the new housing market is expected to usher in marginal improvement in the middle of the year,” says the research from, global ratings agency Fitch expects “new home sales to be sharply lower year-on-year for at least the next several months.”This is because the temporary moderate rise in house sales from the most recent rounds of local government policy easing, such as the elimination of home purchase and mortgage limitations, has subsided.
China’s relaxation of COVID-19 limitations last year temporarily boosted homebuyer optimism and raised the comparison base for several months as well, said Fitch Ratings in a March note.
Fitch now expects new house sales in China to fall by 5–10 percent in 2024, amid the persisting slump in new housing demand.
Its revised prediction expects sales of 850 million to 900 million square meters (sqm) of residential property this year, down from 950 million sqm in 2023 and 1,150 million sqm in 2022.
However, Fitch also sees broader repercussions stemming from the sluggish property sector recovery, extending to local governments, banks, and asset management companies (AMCs).
China is facing a major financial crisis, which is closely linked to the current housing market disaster. In the People’s Bank of China’s latest effort to calm escalating discontent over unfinished flats, including a growing mortgage boycott, the central banker is attempting to mobilize state bank loans from a financing pool of 200 billion yuan to be used for delayed property projects.
The AMCs have been included in the rescue discussions with central bankers and housing regulators since Evergrande defaulted on its debt last year, according to reports.
Slower house sales will restrict bank loan growth, putting more strain on profitability, according to the ratings agency, which also expects the sector’s loan growth of around 10 percent, falling short of last year’s 11 percent increase.
Property-related loans remain particularly sluggish as banks remain cautious about granting new property-development loans, resulting in banks prioritizing large state-owned developers and selected private developers, Fitch said.
This is despite recent regulatory measures to improve access to bank finance for developers.
The prolonged property suffering and significant house price decreases in several lower-tier cities could also undermine small regional banks’ already deteriorating asset quality and credit ratings, Fitch noted.
The extension of the property crisis may impede national asset management firms’ earnings recovery and further impair their standalone credit profiles.
The agency’s-based scenario forecasted moderate asset impairments and sluggish earnings recovery this year, restricting most AMCs’ capacity to refill their low capital levels.
“In such a scenario, our expectation of government support and most AMCs’ ability to fulfil their policy functions would be compromised in the absence of credible plans to restore sufficient capital,” it said.
