China’s property stimulus raises optimism — but more steps are needed for a sectoral turnaround

October 9

A man works at a construction site of a residential skyscraper in Shanghai on November 29, 2016. Chinese household debt has risen at an “alarming” pace as property values have soared, analysts say, raising the risk that a real estate downturn could send shockwaves through the world’s second largest economy.

JOHANNES EISELE/AFP via Getty Images

China’s property stimulus measures delivered a modest boost to the market, but they are not enough to turn around the troubled sector, according to analysts.

Home sales ticked up in some cities during China’s week-long holiday, as stimulus measures boosted homebuyers’ sentiment, a report by research group China Index Academy showed.

Average daily sales in Beijing jumped 81%, in terms of floor area, compared to the same holiday period the year before. Last year’s Golden Week holiday was between Sept. 29 and Oct. 6.

Across the country, however, the average daily transaction area of new homes fell 27% during the holiday compared with the holiday the year before, according to the report which surveyed 25 major cities across China.

With Beijing as an outlier, other tier 1 cities Shanghai, Guangzhou and Shenzhen saw sales fall 61%, 59% and 57%, respectively. Most other cities, surveyed by the report, also saw sales shrink from a year ago to varying extents.

Home sales during the Golden Week holiday, which is traditionally a peak period for big-ticket spendings, have been on a multi-year decline since 2021, according to the report.

The average daily sales figure stood at 107,000 square meters this year, the report showed, against 177,000 square meters in 2021, 158,000 square meters in 2022, and 145,000 square meters in 2023.

The government’s recent moves could boost the market’s confidence but only temporarily, said William Wu, an analyst at Daiwa Capital Markets, “without a more forceful lift, it will be unlikely to stabilize in the longer run.”

“More focus should be on how sales figures change over longer periods to testify the policies’ effectiveness,” Shen Meng, a director at Beijing-based boutique investment bank Chanson & Co. told CNBC.

Comparing against only the six days in the October holiday last year, home sales this year though rebounded 23%, the CIA report said, adding that home purchase orders are generally larger towards the end of each month.

“The sales figures are expected to improve more significantly in October,” it added, citing some delays in retrieving the data, according to a CNBC’s translation of the Chinese-language report.

Confidence crisis

Major cities across China moved to unveil a slew of easing measures to boost homebuyer sentiment after federal steps such lowering mortgage rates on existing loans, cutting average down-payment ratio for all home categories and increasing quota for apartment purchases per household.

Experts say that more is needed for the sector that is grappling with cash-strapped property developers, large inventories of new homes and unfinished projects.

Speaking on CNBC’s “Squawk Box Asia” on Wednesday, Kenneth Ho, chief Asia credit strategist at Goldman Sachs, said that China needs to put out more policies to address “excess inventories” in order to shore up the sector. But “we are not seeing a huge effort [from the government] to do that,” he said.

While some tier 1 cities experienced a rebound in home sales during the holiday, they account for a small share of the nation-wide property market, Zhiwei Zhang, chief economist at Pinpoint Asset Management, said. “They don’t really change the outlook for the whole property sector,” he said, adding that it was still not clear when the whole sector would stabilize.

“Confidence crisis remains a key hurdle,” Daiwa’s Wu said, adding that the market is expecting Beijing to roll out fiscal stimulus that could support local governments’ bulk home purchases and “backstop home prices from free falling.”

Real estate once contributed more than a quarter of China’s GDP, but has been in a slump since Beijing launched a sweeping crackdown on the industry’s high debt levels in 2020. That sent a slew of cash-strapped property developers defaulting on debts and home prices plunging.

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