Trade war effects leave China less room to tighten property curbs, say analysts

China’s slowing economy and the ongoing trade war with the US mean it has less room to increase cooling measures in the property sector, one of the most important economic drivers, according to analysts.

China’s real estate sector has been rife with rumours the government will further rein in the booming market with measures that may include denying certain developers access to the onshore bond market to curb their aggressive bidding for land being auctioned off.

Property sales in May showed signs of cooling from their 2019 peak a month earlier, according to the latest data released from the National Bureau of Statistics on Friday. Aggregate sales by value grew by 6.1 per cent in the January-May period, down from 8.1 per cent in the first four months of the year. Sales by floor space fell 1.6 per cent, a steeper decline than the 0.3 per cent contraction in the first four months.

But Edwin Chen, a UBS Securities analyst, said the increase in external uncertainties, weaker GDP growth, and a possible tapering of sales in the coming months, mean developers and investors should not worry too much.

“Policy decisions always come after data. Due to a higher comparison base for the May-July period last year, the year-on-year growth of property sales in the next two months might taper, and so may the broader economic data. So when the Politburo meeting is held in July, there is a lesser likelihood that the policy will further tighten,” Chen said. “After all, the property sector remains one of the biggest economic drivers.”

S&P credit analyst Matthew Chow also believes that although some local governments have tightened property curbs in the past two months, there is less leeway for further austerity.

“It is pretty much dependent on the upcoming performance indicators. Generally there is less room to further tighten considering the [uncertainty around the] trade war,” he said.