The View | China’s property market is more than just a struggling residential sector

Are there reasons to be bullish on China’s property market? A cursory glance at the performance of the sector in recent years provides ample grounds for pessimism. In the residential market, the value of new home sales, housing starts and real estate investment plunged 46.8 per cent, 62.8 per cent and 37.9 per cent respectively between the peak of the market in 2021 and the end of last year, according to data from Nomura.

In the commercial market, office vacancy rates in Shenzhen, Shanghai and Beijing are among the highest in the leading cities in the Asia-Pacific region, while rents in the first quarter of this year fell at the steepest pace on an annualised basis. In the investment market, transaction volumes in mainland China in the past year are down 18 per cent in annualised terms, the only major market in the Asia-Pacific along with Hong Kong that has suffered a decline in investment activity, according to MSCI.

Yet these bleak figures belie the more upbeat tone among property analysts during the past several months. The more positive mood is part of a broader reassessment of China’s economy and markets brought about by more forceful stimulus measures, major advances in artificial intelligence (AI) and a sense among some investors that China is better prepared to weather a full-blown trade war.

This reappraisal, amplified by concerns about the status of the United States as a safe haven, has encouraged analysts to talk up green shoots of recovery in the property market. The value of monthly nationwide home sales fell 0.9 per cent on an annualised basis in the first quarter of this year, compared with a 28.6 per cent decline in the same period last year, according to data from Moody’s Ratings.

Moreover, since the monetary and fiscal stimulus measures were ramped up in the final quarter of last year, prices of new and second-hand homes in tier 1 cities began increasing on a monthly basis, “a key indicator of a sustainable recovery”, Moody’s said.

HSBC, the most bullish voice on China’s housing market, said in a report on April 23 that low mortgage rates, a supply squeeze and signs that stronger state-backed developers are regaining access to offshore debt markets “present a cocktail of conditions that are driving a structural property market recovery”.