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China Signals Policy Shift on Real Estate Sector amid Economic Slowdown
A Change in Tone and Policy Adjustments
China is showing a shift in its approach to the struggling real estate sector as the country grapples with an economic slowdown. The Chinese government has cracked down on the property market, targeting financial risks associated with speculation and highly indebted developers. However, recent efforts have not been effective in boosting home sales. In a Politburo meeting, top Chinese leaders acknowledged a "great change" in the relationship between supply and demand in the real estate market, signaling the need for policy adjustments. The meeting also removed the phrase "houses are for living in, not for speculation," which had been used as a mantra for tight property market policies.
Focus on Recession Risk and Policy Implications
The change in tone reflects a shift in policymakers' focus from financial risk to recession risk. Larry Hu, chief China economist at Macquarie, explains that policymakers are now more concerned about the overall economic slowdown rather than the risks associated with the property market. This shift in focus suggests that detailed policy announcements to support the real estate sector can be expected in the coming months. The recent rise in the Hang Seng Property Development and Management Index indicates market optimism about potential relaxation of purchase restrictions for smaller cities later this year.
Waiting for Practical Changes and Market Performance
While the change in tone is positive, Ricky Tsang, director of corporate ratings at S&P Global Ratings, emphasizes the need for practical changes to support the real estate market. These changes could include easing requirements for buying apartments, lower down-payments, and removing price caps. Tsang anticipates that property sales will continue to decline this year and the next, especially in less developed cities. Industry data shows that residential property sales have already dropped more than a third from the previous month and the same period last year. Additionally, real estate investment has fallen by 7.9% in the first half of this year.
Increased Focus on Housing Affordability and Completion
Policymakers in China are also turning their attention to housing affordability, along with education and health care. The removal of the phrase about house speculation signals policymakers' belief that they have achieved a certain level of success in controlling speculation. Zong Liang, chief researcher at the Bank of China, suggests that this could mean allowing some price volatility in certain segments of the real estate market, while ensuring affordable housing for basic living needs remains stable. Policymakers are focused on helping developers secure enough funding to complete housing construction, as confidence among potential homebuyers and housing sales rely on the stable completion of housing projects.
Clarity Needed and Confidence Issues
Despite a decline in mortgage rates, home prices and transactions have not seen significant improvements. Moody's expects fewer Chinese developers to default this year, as many have been able to push back maturities. However, more clarity from the Chinese government is needed to boost confidence in the real estate market. Gary Ng, senior economist at Natixis CIB Asia Pacific, highlights the lack of confidence among buyers, as the home prices and transactions have not increased as expected. Clarity in government policies and support measures can help address this confidence issue and drive sustainable growth in the real estate sector.
Conclusion: Impact on New Businesses
The policy shift in China's real estate sector amid the economic slowdown carries significant implications for new businesses. As the Chinese government focuses on recession risk and housing affordability, it is likely to introduce policy adjustments to support the real estate market in the coming months. These changes could potentially create opportunities for new businesses operating in the real estate industry.
One potential impact is the easing of requirements for buying apartments, lower down-payments, and the removal of price caps. These adjustments would make homeownership more accessible, which could lead to an increase in demand for real estate properties. New businesses that specialize in property development, real estate services, or mortgage financing may benefit from this shift in policy.
Additionally, with policymakers prioritizing the completion of housing projects, there may be increased opportunities for businesses involved in construction and real estate development. As the government focuses on ensuring stable housing completion, developers will require funding and resources to meet these expectations. New businesses that offer innovative construction solutions or financing options tailored to the real estate sector may find a favorable environment for growth.
However, confidence issues among potential homebuyers and investors remain a challenge. While government policies are expected to provide clarity and support measures, more transparency from the Chinese government is needed to boost confidence in the real estate market. New businesses that can address these confidence issues and offer solutions to increase trust and transparency in the industry may find a niche in the market.
Overall, the policy shift in China's real estate sector presents both opportunities and challenges for new businesses. Those that can adapt to the changing landscape, provide innovative solutions, and instill confidence in buyers and investors are likely to thrive in this evolving market.
Article First Published at: https://www.cnbc.com/2023/07/26/china-signals-more-support-for-real-estate-with-a-big-change-in-tone.html.svg)
