Favorable policies have helped China’s property market to record two consecutive months of improvement
By CCB International
The latest figures from China’s National Bureau of Statistics point to significant improvement in the real estate market in June. Following a meeting by China’s Politburo on April 30, and the release of a new housing policy package on May 17, real estate sales rose 50.9% month-on-month in June, up from 13.2% growth in May.
At the Politburo meeting, the government reiterated some of its ongoing policies and offered more details about its “new real estate development model” in progress. For example, it stressed the need to provide more high-quality housing units to meet demand from second-home buyers looking to improve their living conditions.
Addressing a housing supply glut was also a focus of the meeting, with the government saying that “coordinated efforts will be made to explore how to digest existing units and ensure the quality of new units at the same time.” An acceleration was also expected for “home replacement” policies.
Half a month later on May 17, the government unveiled a new housing policy package, including measures like removing the mortgage rate floor at the national level and lowering down payment ratios and housing provident fund lending rates. It also included the rollout of a re-lending facility to support the purchase of existing units by local governments to be used for affordable housing. It’s clear that government policies are moving in the right direction to support the real estate market.
Thanks to these policies, despite negative seasonal factors, real estate sales measured by value registered a month-on-month increase of 50.9% in June, much higher than the 29.6% increase last June. Year-on-year declines also narrowed from a drop of 26.4% in May to 14.3% in June, which is consistent with changes in the contracted sales seen in real estate developer surveys. A drop of 26.4% in sales value reflects a decline of 14.5% in sales area and an increase of 0.2% in price. For the first half of 2024, sales value fell 25% year-on-year, as a result of a 19% decline in sales area and 7.4% decline in prices.
Other real estate-related indicators are also trending in the right direction. Real estate development investment fell 10.3% year-on-year in the first six months of 2024, moderating from an 11.1% decline in May. According to the government, three major initiatives, namely promotion of subsidized housing, urban village renovation and public infrastructure construction, contributed 1 percentage point to total real estate investment. In addition, new housing starts fell by 21.7% year-on-year, narrowing from a 22.7% decline in May. Developer access to financing improved as well, with total financing raised by developers moderating from a 21.8% year-on-year decline in May to 15.2% in June.
We expect the market to keep improving with the ongoing implementation of these policies and gradual improvement in market fundamentals. Policy implementation is going well. Financial institutions have tapped 12 billion yuan ($1.65 billion) from a central bank re-lending facility set up to support affordable rentals, and extended 25 billion yuan in loans themselves to tenants of affordable rentals. More than 70 cities have introduced “home replacement” schemes. First-tier cities, including Beijing, have lowered down payment ratios and mortgage rates. For example, in Guangzhou, mortgage rates are down to the 3% to 3.2% range, which will help ease the burden on homebuyers and lift sentiment.
Market at bottom?
In addition to the impact from policy changes, we have also seen more comments and speculation that the market may be near a bottom. Disagreement on the timing and extent of a market recovery notwithstanding, we have noticed subtle changes suggesting the correction may end soon, based on what we’ve seen from media and other channels.
We have also noted a stabilization in developer stocks since early July. With potential upside to these stocks amid industry consolidation, we prefer quality state-owned developers like China Overseas Land & Investment (0688.HK), China Resources Land (1109.HK), Poly Real Estate (600048.SH), Yuexiu Property (0123.HK) and Greentown China (3900.HK). We see these as the best candidates for re-rating, backed by their strong fundamentals.
We’ve given China Overseas Land, China Resources Land and Greentown China target prices of HK$20.40, HK$36 and HK$11, respectively, representing potential upside of 57%, 42% and 72% from last Friday’s closing prices.
This commentary is the views of the writer and does not necessarily reflect the views of Bamboo Works
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