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ANALYSIS-Reluctant buyers pose main threat to Beijing’s property revival efforts

A slew of recent supportive measures will bring China’s cash-strapped property developers much needed relief, but a full recovery of the sector will be hobbled by increasingly elusive buyers, say bankers, developers and analysts.

November 18, 2022
By Liangping Gao and Ziyi Tang and Clare Jim
18 November 2022

By Liangping Gao, Ziyi Tang and Clare Jim

BEIJING/HONG KONG, Nov 18 (Reuters) – A slew of recent
supportive measures will bring China’s cash-strapped property
developers much needed relief, but a full recovery of the sector
will be hobbled by increasingly elusive buyers, say bankers,
developers and analysts.

From a sweeping purge a couple of years ago to a series
of financing measures now, China’s changed approach towards the
property sector, a key pillar of the economy, reflects how dire
the situation has become.

Weighed down by protracted COVID-19 curbs, falling home
prices and rising unemployment in the world’s second-largest
economy, many prospective buyers are putting off their plans,
creating challenges for developers and policymakers.

“These policies will have little lasting effect and the
property prices will not go up significantly,” said Jack Yang,
an engineer in Beijing, noting “future income” had become a key
concern for homebuyers.

Yang said he had put plans to sell his home and buy a
new one on hold due to COVID restrictions, cuts in his salary
and concerns he may lose his job.

Chinese regulators outlined 16 supportive measures last
week, mainly aimed at boosting liquidity for developers, in the
most comprehensive rescue package for the sector since it was
hit by a debt crisis last year.

Markets cheered the measures, which included loan repayment
extensions and easier access to fresh funding, but bankers and
analysts say they only address the property market’s supply
problems, with the demand recovery still a key concern.

Demand for property, a sector that accounts for roughly
a quarter of China’s economy, took a big hit this past year as
many developers lurched from crisis to crisis and halted the
construction of apartments as they ran out of money.

The economic fallout of COVID lockdowns in many cities also
contributed to buyers like Yang putting off plans to take on
debt to buy new homes – a trend, bankers and analysts say, is
unlikely to change anytime soon.

Property sales measured by floor area fell for a 15th
straight month in October, while new home prices fell at their
fastest pace in over seven years, official data showed this

John Lam, head of China and Hong Kong property research at
UBS said the government’s move to support liquidity “kind of
breaks the negative cycle”, adding this “should be a positive in
terms of the demand recovery”.

But rating agency Fitch said on Tuesday it was sticking to
its forecast for a “largely flat trend” in new home sales in
2023 even after the latest support measures.

Housing demand “hinges on a recovery in homebuyers’
sentiment and employment prospects, which we think depends on
sustained easing of China’s pandemic-related controls,” it said.

China last week eased some COVID rules, but analysts say the
zero-COVID strategy will continue to weigh on economic activity.

While Beijing has cut mortgage costs and relaxed some curbs
this year to boost new home purchases, analysts say authorities’
focus mostly on affordable housing and President Xi Jinping’s
“common prosperity” push are likely to keep a lid on demand.


The fall in home prices is a major concern for homebuyers in
China given a large share of them buy new homes as an investment
option, with returns historically reaching as high as 30%-50%
over a period of time in some cities.

Despite the recent liquidity-boosting measures, some bankers
say developers continue to face credit risks given the uncertain

“The measures will improve the real estate financing
environment, which means that for banks, the vicious cycle and
death spiral between real estate risks and financial risks have
been alleviated,” said an official at a mid-sized commercial

“But it is too early to say that the credit risk alert of
real estate has been lifted,” said the banker, who declined to
be named as he was not authorised to speak to the media.

According to UBS, Chinese banks have roughly 88 trillion
yuan ($12.43 trillion) worth of exposure to the property sector.

It estimates the property sector downturn will cost the
banking system up to 1.4-1.5 trillion yuan in the next few
years, mainly from potential losses in banks’ unsecured property
development loans, bonds, and non-standard assets.

For now, however, the main concern for some homebuyers is
whether the latest measures will enable developers to come out
of the crisis and resume the construction of apartments.

Sam Wang, a 22-year-old freelancer in the catering
industry, said a relative had bought “a property for presale in
full payment” in Wuhan about three years ago, but it was still

“For me, I am about to buy a house for residential purposes,
and in the short term, I’ll take a wait-and-see attitude,” said

($1 = 7.0802 Chinese yuan renminbi)

(Reporting by Liangping Gao, Ziyi Tang, Engen Tham, Xie Yu,
Clare Jim and Rong Ma; Graphics by Riddhima Talwani and Kripa
Jayaram; Writing by Sumeet Chatterjee; Editing by Ana Nicolaci
da Costa)

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