David Chao

Opinion | China won’t let the property market collapse but the heady days are over

Given policy goals, we can expect more deleveraging to manage loan risks even as Beijing prioritises homebuyers and supports cash-strapped local governments

But there will be no return to the ‘high leverage, high growth’ model that drove the sector over the past decade

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Residential buildings under construction at Tahoe Group Co’s Cathay Courtyard development in Shanghai on July 27. Prospects for Tier 1 cities have improved, while lower tier cities continue to struggle. Photo: Bloomberg

David Chao

Published: 4:15pm, 31 Oct 2022

Investors were probably hoping that new policy support for China’s property market would be announced at the 20th party congress. Alas, the event focused on political developments and no specific measures were unveiled to address the challenges facing the real estate sector.

This has left the market waiting for updates on how to navigate China’s property sector, an important pillar of growth since the private property rights space expanded decades ago.

China is facing a challenging economic period. Policymakers are keenly aware that markets are looking for insights as to how Beijing will target the soft spots in the domestic economy.

Relief measures for the property sector particularly are still a priority. Policymakers maintain that “housing is for living in, not for speculation”, a mantra reiterated in the work report of the party congress. The market has seen bond defaults, unfinished construction and mortgage boycotts from protesting homebuyers, against the backdrop of the earlier deleveraging requirements for developers.

Given the emphasis on stability, recent months have seen a step up in efforts to ease the property sector downturn. Right before the start of the National Day holiday on October 1, constraints were relaxed to allow first-time buyers lower mortgage rates in select cities. The finance ministry also dangled personal income tax rebates for those who buy new homes within a year of selling.

This was on top of a cut in the five-year loan prime rate – the reference for mortgages – from 4.45 per cent to 4.3 per cent in August, and 200 billion yuan (US$27.6 billion) in special loans to help developers finish stalled housing projects.

Opinion | China won’t let the property market collapse but the heady days are over

Given policy goals, we can expect more deleveraging to manage loan risks even as Beijing prioritises homebuyers and supports cash-strapped local governments But there will be no return to the ‘high leverage, high growth’ model that drove the sector over the past decade

Given policy goals, we can expect more deleveraging to manage loan risks even as Beijing prioritises homebuyers and supports cash-strapped local governments

But there will be no return to the ‘high leverage, high growth’ model that drove the sector over the past decade