Can China’s Property Rescue Package Boost Confidence?
In recent months, China has rolled out various measures to relax restrictions on borrowing for property developers and boost liquidity, signalling that the worst is over for the crisis-hit real estate sector.
In January, China reportedly dialled back restrictions on the amount of new debt developers can raise annually, which had been introduced in August 2020 to curb excessive borrowing.
This follows a headline-grabbing 16-point plan unveiled on 18 November 2022. Hailed by analysts as the most comprehensive support package in recent years to ease the sector’s severe liquidity squeeze, the plan outlined various measures to resolve financing bottlenecks that had caused widespread construction delays and anxiety among homebuyers.
Property stocks rallied after the news of the rescue package. A month earlier, China’s new home prices had fallen at their fastest pace in over seven years, further shaking homeowners’ confidence amid an already weak economy crippled by zero-COVID lockdowns. With housing making up nearly 60% of household assets, the spillover effects of a property crash could undermine domestic consumption and even social stability.
The timing of the plan’s release was significant: it came a week after President Xi Jinping reaffirmed the property sector, which contributes one-quarter of GDP, as a “key pillar” of the economy. This signalled the end of China’s crackdown last year on the sector’s high debt levels.
At the same time, it appears that Beijing does not intend to bail out the entire sector. The 16 measures were officially published on the same day that China’s state banks announced over RMB220billion worth of credit lines to financially stronger developers like Vanke and Midea Real Estate. But for the other players, for instance Evergrande, which defaulted last year, they appeared to be left to sink or swim. Analysts noted that this selective state support meant that the 16-point package alone would not fully restore homebuyers’ confidence in developers.
To stimulate a full-fledged recovery, Beijing would need to address more deep-seated problems such as an economic slowdown, record youth unemployment and the worst job market in decades, which are all dampening demand for housing.
“It is now increasingly risky to own a property in China,” said Mr Winston Lee, Director of Special Projects at PropertyGuru. Exacerbating the property slump are factors such as the country’s declining population – its first in six decades – as well as regulatory uncertainties within China, he said.
But the situation also presents bright spots for foreign real estate players. “As it becomes increasingly challenging for investors in China to dabble in the country’s real estate market, this presents a unique opportunity for developers outside of China to target these investors,” added Mr Lee.
The end of zero-COVID policies in December 2022 has thus been hailed as the real game-changer for the property sector. With the reopening of China’s borders on 8 January 2023, its economy is expected to pick up, reviving trade, growth and job creation. This would boost consumption and income growth, which are critical to restoring investor and homebuyers’ confidence and enabling developers to strengthen their balance sheets. In turn, this would boost the effectiveness of measures like the 16-point plan, whose aims include slowing the pace of falling home sales.
For Singaporean developers whose investments in China tend to be more concentrated in retail, commercial and logistics properties, a successful re-opening would lift demand for all these sectors. They would also do well to position themselves for more opportunities – and competition – as the real estate sector stabilises over time.
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