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A Bloomberg Intelligence gauge of Chinese developer shares fell 3.3% on Thursday, extending losses from a mid-May high to almost 21%. Sunac China Holdings Ltd. was the biggest laggard with a slump of 12%, while CIFI Holdings Group Co. sank 8.4%.

Real estate stocks have retreated amid skepticism over a broad support package unveiled by the central government on May 17. While investors initially cheered the policies, which include lower down-payment requirements for homebuyers, they have since questioned how useful they will be in reviving demand and addressing a housing inventory glut.

There’s also the concern about the size of the measures. Officials have said that a central bank program would incentivize bank loans worth 500 billion yuan ($69 billion), but that’s a small fraction of the value of China’s vacant apartments.

”The latest sales data show there’s not much improvement in property fundamentals,” said Jeff Zhang, an analyst at Morningstar Inc. “We may need to wait until the end of year to see a narrowing of declines or a rise in monthly sales as a result of the government’s rescue package.”

New-home sales at the 100 biggest real estate companies dropped 33.6% from a year earlier in May, easing from a 45% decline in April, China Real Estate Information Corp. data showed. While the slight month-on-month pickup buoyed property shares earlier this week, worries over the long-term outlook later pushed investors to take profits.

“We only do short-term investment in Chinese property stocks as the industry’s fundamentals are still weak,” said Joy Young, the founder of Shenzhen Infinite Fund Management Co.

As some investors wait for a clearer sales-recovery picture, others are seeking clues on major policy shifts that may be unveiled at the Third Plenary Session in July.

Beijing will likely follow other cities such as Shanghai and Shenzhen in relaxing housing curbs, according to John Lam, an analyst at UBS Group AG. Other possible measures may focus on destocking, he added.

Morningstar’s Zhang expects the Chinese government to be more active on property supports until July’s plenum, “but the room for policy adjustments may be smaller than before, as the May rescue package is already very forceful.”

Source: Bloomberg

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Spillover?

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Sector among first to recover as more brands, investors, developers are attracted

The retail property sector will be among the first to see recovery, said industry experts, who believe this particular realty domain contains huge growth potential.

By comparing the average data of the same period between 2017 and 2019 with this year’s first nine months, demand for retail property leasing recovered rapidly, only after logistics properties, said Xie Chen, head of research with CBRE China, a commercial real estate services and investment firm.

“Thanks to the constant resumption of demand, the rise of retail property vacancy rates shrank since the last quarter of 2021,” said Xie. “The conditions in Beijing, Shanghai and major second-tier cities in East and Central China are more encouraging, as the rent for retail space on the first floors of shopping centers has stabilized with small growth.

“Despite a slow global economy, China’s economic fundamentals have continued to attract brands, investors and developers to the retail property market,” said Shaun Brodie, head of research content for China with Cushman & Wakefield, a global real estate services firm.

Due to China’s positive economic performance, good business environment and established retail ambiance in mature projects, brands, investors and developers have further expressed their confidence in the country’s overall retail property market, said Brodie.

Data from the National Bureau of Statistics showed China’s total retail sales of consumer goods increased by 6.8 percent year-on-year to reach 34.2 trillion yuan ($4.7 trillion) in the first three quarters, and consumption contributed 83.2 percent to overall economic growth, indicating that consumption has become a major driver of economic growth.

“Retailers, particularly domestic brands, are adjusting their offerings to align with evolving consumer preferences and pricing to cater to a more affordable range,” said James Macdonald, head and senior director of Savills China research.

Furthermore, specific sectors like health and wellness, new energy vehicles, and children-related retail operators are showing signs of recovery and increased activity, Macdonald said.

“The revival of consumption has spurred recovery of the retail property market. In Shanghai, for example, retail leasing in the city continued to improve over the third quarter,” said Yao Yao, head of research for JLL China, a global real estate advisor.

Some 320,000 square meters of retail space in Shanghai’s urban area were absorbed in the third quarter, nearly twice that of the 170,000 sq m in the second quarter, said Yao.

“The food and beverage sector remained active in offline expansion. We also observed stable demand from sportswear and sports equipment brands, skincare and perfume chains, jewelry and accessory brands as well as NEV showrooms, offering strong support toward the sector’s leasing demand rebound,” Yao said, adding that due to the huge market supply, the recovery of rents was at a comparatively slower pace.

To better tap new trends in the retail property sector, Yao suggested strengthening the merger of online and offline channels, further exploring new retail forms by building innovative consumption scenarios and enhancing consumption experiences as solutions.

Brodie sees great potential in the retail property sector in major Chinese cities in terms of real estate investment trusts, sustainability, digitalization and the metaverse.

According to estimates, there are more than 2,100 pedestrian streets each with a retail area of more than 20,000 sq m in China. The total inventory of pedestrian streets now exceeds 100 million sq m. Meanwhile, there are over 6,835 retail properties with a gross floor area of over 30,000 sq m each.

The total inventory of retail properties now exceeds 540 million sq m. REITs can open up the previous closed-loop system related to retail asset operations involving investment, financing, construction, management and fund exiting, Brodie added.

Source : ChinaDaily

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China’s real estate industry is collapsing in slow motion.

Major developers like Evergrande and Country Garden remain stuck in spiraling debt problems. So-called ‘ghost cities’ dot the Chinese countryside. And now the International Monetary Fund just cut its global growth forecasts for 2024 and called out China’s real estate crisis as a big reason why.

″It’s important to recognize that there is a longer-term challenge here, and that is we essentially have too large a construction sector in China, we have too large a real estate sector because underlying demand for apartments is declining,” said Frederic Neumann, HSBC chief Asia economist, in an interview with CNBC. “We have slowing urbanization. We have declining demographics.”

China’s overall post-pandemic economic recovery has been less than stellar. Youth unemployment is at record levels, gross domestic product forecasts have been lowered and the ongoing real estate crisis has been hitting consumer confidence and foreign investment in the country.

Beijing is now attempting to alleviate the sector’s pressure with several policy moves like lowering minimum down payments and allowing for the adjustment of mortgage rates. The spillover effects on the global economy, though, could create headwinds for years to come, said Neumann.

“China’s shrinking real estate sector over the coming years will really have a huge impact on heavy industry, on the commodity markets globally,” he said. “There’s going to be less steel demand. There’s going to be less cement being used — less glass, for example. That impacts within China heavy industrial areas that really produce these raw materials.”

Source : CNBC

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An upturn in China’s property sector, which has played a major role in fueling the nation’s economic output yet has been on a sluggish growth track over recent years, is expected in the second half of the year as restrictions are eased in more places, propelling the recovery of the world’s second-largest economy, experts told the Global Times.

On Thursday, the city of Zhengzhou, capital of Central China’s Henan Province, took the lead in announcing measures, including easing curbs on home purchases, reducing the down payment ratio and cutting mortgage rates.

Among the 15 measures, 11 were directly related to home purchases, which addressed the market’s primary concerns. The city’s move indicated that a nationwide campaign to ease restrictive property policies and offer more support for the sector has begun, Yan Yuejin, research director at Shanghai-based E-house China R&D Institute, said in a note sent to the Global Times.

Some cities rolled out similar measures last year, but they were uncoordinated decisions with no particular targets to resolve restraints on the supply end.

Nanjing, capital of East China’s Jiangsu Province, on Friday announced eight measures to stabilize the local property market including increased purchase subsidies.

The housing market has widely welcomed these policy adjustments, and observers expect that second-tier and even first-tier cities will follow suit.

Beijing, Shanghai, Guangzhou and Shenzhen in South China’s Guangdong Province, all of which are classified as first-tier cities, vowed to make further efforts in line with their local situations to improve the property market, although no detailed measures have yet been announced.

“The first-tier cities’ gesture of following up and expressing their views in a timely manner indicated that the signal of policy relaxation is becoming clearer and clearer,” Yan said.

But considering the robust purchasing power in these cities, loosened curbs are likely to target a group of people in a precise way, in case home prices start to soar again, said Zhang Dawei, chief analyst with the real estate agency Centaline Property.

E-house China R&D Institute studied the impact of a possible policy change by first-tier cities regarding previous mortgages.

Assuming that buyers don’t have real estate under their names – regardless of whether they previously had a mortgage – they can enjoy the same down payment ratio and interest rate discount as those who are buying their first homes.

In this case, the down payment ratio can be brought down from an average of 73 percent to 33 percent, and the average interest rate can be reduced from 5.03 percent to 4.5 percent.

“First-tier cities’ poised loosening… will bolster market confidence and accelerate transactions, mitigating the huge pressure faced by the ailing sector,” said Yan.

Property investment fell 7.9 percent year-on-year to 5.86 trillion yuan ($819.7 billion) in the first half of the year, according to data released by the National Bureau of Statistics in July.

On Thursday, the People’s Bank of China, the central bank, pledged to precisely implement differentiated housing credit policies, meet the reasonable financing needs of private real estate enterprises and promote the sound development of the real estate sector.

“With support measures in the pipeline, including lifting home purchase restrictions in more cities, bringing down residential mortgage interest rates and even moderately reducing the interest rates of existing mortgages, there could be an upturn of property investment and sales in the second half,” Wang Qing, chief macroeconomic analyst at Golden Credit Rating International, told the Global Times.

As to financial terms, the five-year loan prime rate (LPR) is likely to be adjusted lower independently in the second half of 2023, according to Wang’s outlook.

Most new loans in China are based on the one-year LPR while the five-year rate influences the pricing of mortgages.

Despite the bumpy path of economic recovery since the second quarter, the overall trend of upward movement hasn’t been changed, experts said.

“With an array of optimized measures in place, the property sector will soon achieve a soft landing, which is of great significance to stabilizing growth and defusing risks during the remainder of the year,” Wang noted.

China’s real estate industry is undergoing an adjustment and will face many challenges, such as liquidity issues. However, with the introduction of relevant policies, it is believed that challenges can be overcome in such a huge market, said Wang Shi, one of the best-known people in Chinese business and founder of developer Vanke, in a recent lecture.

Source : GlobalTimes

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