But Lu was surprisingly optimistic last week, at least by his own bearish standards. In his April 30 report, he said the Chinese government had “taken an important step towards resolving the chaos” in the housing market. Even Nomura's optimistic tone toward China suggests a significant policy shift in the real estate sector.
Shortly before Nomura released the memo, Beijing announced New measures will be sought to address the housing crisis. The statement that caught the attention of analysts was the government's desire to “study policies to drain housing stockpiles.”
of stronger emphasis Securing delivery of sold homes comes amid speculation that the government is considering establishing a national platform to acquire sold but unfinished housing projects, with JPMorgan The move is likely to be seen as a “bazooka” move by the market, according to the report.
10:57
Booms, busts, and borrowing: Has China's housing market slumped?
Booms, busts, and borrowing: Has China's housing market slumped?
What is clear is that the severity of the real estate market downturn is playing into the hands of the Chinese government. The sector's fundamentals continue to deteriorate.Real Estate Investment 9.5% reduction In the first quarter of this year, new home sales for the 100 largest developers fell 45% on an annualized basis last month.
S&P Global Ratings noted that although secondary market sales rose 30% last year, secondary market transactions continued to decline due to persistent buyers' concerns that developers did not have the funds to complete. are doing. advance sale housing.
The Chinese government is coordinating efforts to identify developers and projects eligible for fast-track financing, but stronger measures to ensure housing completion will help restore confidence and lower the price floor. Could be helpful. “This is an important signal that could reduce downside risks for the sector,” said Michelle Lam, Greater China economist at Société Générale.
The challenges facing policy makers are enormous. Goldman Sachs estimates that its area was 3.5 billion square meters (37.7 billion square feet). Sold but unfinished house At the end of last year, 40% of that was from private developers facing liquidity pressures. The funding shortfall to ensure all private developers delivered sold homes was a whopping 4 trillion yuan (US$556 billion).
A view of an unfinished housing complex developed by China Evergrande Group on the outskirts of Shijiazhuang, Hebei province, on February 1.Photo: Reuters
Nomura believes that the central government needs to be involved in some way to ensure the handover of used housing, such as establishing a special agency in charge of absorbing unfinished private housing. They could then be sold or rented as part of government construction efforts. more affordable housing.
That way, you can kill three birds with one stone. First, demand for construction workers and raw materials will increase, spurring growth.Second, it will be improved Confidence in the housing market, especially the unreliable pre-sale model. Third, increased construction activity would help support financial stability as it would help ease liquidity tensions in the real estate sector.
But while the focus on reducing housing stock represents a turning point in policy responses, it raises more questions than answers. The biggest uncertainties revolve around the timing, size and source of funding to ensure that stalled housing projects come to fruition. As always in Chinese policymaking, details are scarce and priorities contradict each other. Market expectations are too high.
Given banks' reluctance to increase exposure to real estate development, it is not surprising that Nomura expects central government to play a direct role in ensuring housing completion. S&P Global Ratings notes that growth in real estate development loans last year was 11 percent, while total loans grew by 1.5 percent. On the other hand, local governments have a large amount of debt And they must balance the need to stabilize the property market with the risks of fueling speculation.
08:36
A fading fairyland dream: How China Evergrande rose and fell
A fading fairyland dream: How China Evergrande rose and fell
This puts the central government in a predicament. The Chinese government needs to revive the housing sector without transferring too much risk from developers to the state or state-backed entities. Equally important, there is a need to restore homebuyer confidence and halt price declines without compromising the main objective of downsizing the real estate industry. new growth driver Please grab it.
If there is a “bazooka” that China needs, it is one reliable and effective enough to thread the needle. Investors are Housing market recovery It should temper their expectations. “The best we can hope for is market stability,” Lam said.
Still, the collapse in the real estate sector now appears to be severe enough for the government to tackle one of the main factors suppressing demand: the huge backlog of unfinished pre-sale projects. While this is not the main reason for the recent improvement in investor sentiment towards China, it is helping to lighten the mood.
