Chinese Home Sales Plunge During May Day Holiday
China’s average daily home sales during the May Day holiday dropped by 47 percent compared to the previous year, according to data from China Index Academy (CIA). The numbers were also approximately 30 percent lower than pre-pandemic levels in 2019. The decline in home sales was seen in 19 out of 22 cities surveyed, with megacities like Guangzhou and Shanghai experiencing a decrease of over 60 percent. CIA stated that the new housing market is still under pressure and suggested potential measures such as lowering down payment ratios, reducing mortgage interest rates, and transaction taxes and fees.
Positive Demand Seen in Second-Hand Housing Market
While the new housing market struggled, the second-hand housing market saw some positive demand in the short term. This was attributed to the “price for volume” strategy and current “trade-in” activities. The “price for volume” policy involves setting lower prices in order to increase sales volume, especially in situations where there is excess supply. The term “trade-in” refers to transactions where property developers and buyers exchange properties as part of the payment for a new home.
The Chinese Property Market Crisis
China’s property market has been facing a crisis since 2021, with major developers defaulting on debts and plummeting sales. This crisis is a result of long-standing issues such as mounting debt and unsustainable growth strategies. The Chinese authorities have taken steps to stabilize the market by easing restrictions on debt refinancing and loans. However, analysts believe that these policies have limited, short-term impact and that the government is not overly concerned about the property sector’s downturn.
Market Sentiments Dampened by Lack of Stimulus
The recent Two Sessions meeting did not provide more ambitious stimulus for the property sector, which has dampened market sentiments. While the government remains committed to its policy that housing is not for speculation, Nomura expects the sector’s fundamentals to remain under pressure with limited potential policy support.
Outlook for New Home Sales
Fitch Ratings expects new home sales in China to be sharply lower year-on-year for the next several months. The temporary rise in sales from local government policy easing has subsided, and the relaxation of COVID-19 limitations last year has also had an impact. Fitch predicts a 5-10 percent decline in new house sales in 2024, with sales of residential property expected to reach 850-900 million square meters, down from 950 million square meters in 2023 and 1,150 million square meters in 2022.
Broader Repercussions on the Financial Sector
The sluggish recovery of the property sector is expected to have broader repercussions on local governments, banks, and asset management companies (AMCs). The People’s Bank of China is mobilizing state bank loans to be used for delayed property projects in an effort to calm discontent. Banks remain cautious about granting new property-development loans, which will restrict bank loan growth and put strain on profitability. Small regional banks could also face deteriorating asset quality and credit ratings due to the property crisis. Additionally, the extended property suffering may impede national asset management firms’ earnings recovery and impair their credit profiles.
In conclusion, China’s housing market saw a significant decline in home sales during the May Day holiday, with the new housing market facing adjustment pressures. The second-hand housing market showed some positive demand in the short term. The property crisis has wider implications for the financial sector, including banks and asset management companies. The outlook for new home sales remains bleak, and the government’s limited support has dampened market sentiments. Overall, the property sector’s downturn continues to pose challenges for China’s economy.
