Housing market tries to find its feet again

Policy easing spurs demand and recovery hopes, but rally not yet in sight

Despite constant fluctuations in China's troubled housing market, a tentative recovery is taking shape nevertheless, particularly in top-tier cities, on the back of several local-level policy easings — and this will likely lay a solid foundation for the real estate sector's high-quality and sustainable development in the long term, experts said.

China's four largest cities — Beijing, Shanghai, and Guangzhou and Shenzhen in Guangdong province — continued their average year-on-year growth in new home prices in October, data released by the National Bureau of Statistics on Thursday showed.

Property experts attributed the recovery to a series of measures since late August, including cuts to down payments on first- and second-home purchases, easing of criteria for first-home mortgages, cuts to interest rates on existing mortgages and easing of home purchase limitations.

"We believe the adjustments in real estate policies were timely, aimed to prevent housing sales from declining further," wrote analysts Ren Yingxue, Wang Zitian and Zhang Renyuan in an S&P Global (China) Ratings report. "In our view, the implementation of such policies would unleash part of the pent-up demand from first-home buyers."

Qiang Ni, 37, a human resources executive at a foreign-funded enterprise in Shanghai, is one such prospective homebuyer with a positive outlook on the current housing market. She started viewing new homes a month ago. She said the current market offers a good buying opportunity, and her target is to buy a small home in Pudong New Area for her parents.

"Both my parents are above 60. They are living in nearby Kunshan in Jiangsu province. I'd like them to settle down in Shanghai so that I could take better care of them," said Qiang, adding that recent policy adjustments have persuaded her to consider buying a home.

Major policies related to realty were adjusted as many as 92 times in September, the highest frequency in a single month since October 2022, according to the China Index Academy.

This helped buoy an otherwise low market where the four benchmark cities registered just a 0.4 percent year-on-year growth in October in new home prices, with smaller cities showing a varied trend.

"Nevertheless, factoring in the sluggish demand in low-tier cities and tepid sales from January to August, we anticipate that the recent easing of restrictions will underpin real estate sales throughout the year, but is unlikely to drive a strong market rally nationwide," the S&P Global report stated.

Yao Yao, head of research for global real estate advisor JLL China, said it will take some more time for the gradual release of homebuying demand, and the stabilization and rebound of transaction volume will come afterward.

"Considering the relatively limited relaxation measures in first-tier cities, there are quite a few potential homebuyers who anticipate stronger policies. As consumers tend to be more active when prices are rising rather than when prices trend down, they will wait out the downward curve in most Chinese cities," Yao said.

James Macdonald, head and senior director of Savills China research, said he believed the policy measures are not necessarily designed to encourage residential sales growth, but to stabilize market conditions and shape a pickup in transaction volumes. The lack of a broader rebound despite strong government measures might be due to a lag in policy impact, lingering market uncertainty and concerns among potential homebuyers about the economic outlook.

"In the current market environment, boosting both market and homebuyers' confidence is crucial, which requires several conditions and measures, such as maintaining a stable macroeconomic environment, ensuring transparent policy communication and implementation, promoting sustainable development in the real estate market, offering financial support to homebuyers, and enhancing market regulation to mitigate risks and fluctuations," Macdonald said.

Xie Chen, head of research with CBRE China, a commercial real estate services and investment firm, said individual property developers' debt crisis has affected new home sales as homebuyers are concerned about the delivery of projects that are still under development, while the weak economic recovery has also crimped the release of home purchase demand.

In third- and fourth-tier cities that do not have strong industrial supports and are facing a supply surplus, home prices may take time to rise again as they need to tackle the destocking problem first, Xie said.

"As for the longer term, the main goal is to form a substantial home market where houses are for living in, not for speculative investment (in line with the national principle). This should ensure healthy future development of the market," said Shaun Brodie, head of research on the China market at Cushman & Wakefield, a global real estate services firm.

Brodie further said the optimization of many residential real estate policies in various cities and local-level areas will gradually create a synergy that will help stabilize, and inject confidence into, the market.

"These policies will go some way to promote quality urban agglomeration, a further improved use of land resources, greater financial stability within the residential real estate market and the encouragement of not just the sustainable purchase of homes, but also sustainable renting of homes," said Brodie.

Sheng Laiyun, deputy head of the NBS, said during a State Council Information Office news conference on Oct 18 that there is still solid support for China's real estate industry to achieve sustainable and high-quality development.

"We are still in a stage of economic transformation, upgrading and high-quality development, with great room for urbanization both in terms of quantity and quality," Sheng said.

According to Yao with JLL, China's urbanization rate reached 65 percent in 2022 with a lot of room still for further enhancement in the years to come, which means there still exists abundant inelastic demand for improved living by way of housing upgrades.

"The initiative to build a housing system that treats leasing and owning properties equally will also promote property developers' transition from the traditional high turnover mode to a more stable operation mode. Such a transformation will not only boost economic development, but also guide the real estate market toward the direction of rational investment," Yao said.

Macdonald said the future will necessitate regulatory vigilance, which is already underway, and prudent guidance to sustain its steady growth.

"While the real estate sector faces short- to medium-term challenges, its long-term prospects appear promising. The current slowdown is, in part, a response to addressing long-standing market imbalances, introducing new guidelines, and enhancing regulatory oversight.

"Additionally, it involves aligning the real estate sector with the current pace of urbanization and economic growth. This evolution signifies the industry's transition toward maturity, with a greater emphasis on asset management, adaptability and sustainability, as opposed to the rapid growth observed in its earlier stages," said Macdonald.

Brodie said he expects the real impact of these policies on the market to be visible in the coming months, given the fact that the residential real estate sector generally takes time to absorb policies.

"In addition to policy support, the speed of China's urbanization and the gradual improvement in people's living standards have led to huge demand for essential as well as improved housing, which is also an important factor in the process of China's residential real estate sector's transformation to a market that can attain both high-quality and sustainable development," said Brodie.

On the course that the high-quality development of China's real estate market will likely take, Xie with CBRE said the country's consumption- and innovation-driven growth model is expected to create demand for various types of properties. So, property developers may find new business by focusing on urban regeneration as well as by offering high-quality products and services.