By WANG Tingting
Rating agency Fitch believes the real estate market in China will not bottom out, much less rebound, but is now in a long period of decline.
Despite much government action, the real estate business has not improved much. Fitch predicts that sales will continue to decrease in 2024. Shenzhen has reduced the minimum down payment for second homes from 70 percent to 40 percent, but the market response is close to imperceptible.
The Ministry of Housing is committed to the construction of affordable housing which could be a new model for real estate in the long term. The financial regulatory authorities are drafting a "white list" of large real estate enterprises, including Vanke and Country Garden, to receive support, including credit, bonds, and equity financing.
Stability through borrowing
Fitch foresees that authorities will continue to target stability through loans, bonds and equity financing but financial institutions are unlikely to play ball. Banks are selective in their lending, with a preference for state-owned enterprises and well-established private enterprises. Year-on-year growth of bank loans in the first three quarters of this year was around 4 percent, much lower than the average loan growth rate of 11 percent.
Moody's, if anything, is slightly more gloomy, with declines expected for the entire domestic real estate industry and its supply chain. Current measures will not lead to a sustained sales recovery. Even if the market stabilizes, the contribution to GDP will continue to decline.
The contribution of real estate to GDP fell to 24 percent last year from 36 percent in 2015. It’s expected to sink to around 16 percent by 2030.
Let some developers get stable first
Unlike previous crises in 2008 and 2014, the policy today emphasizes stability, stopping the slide, whereas previously it was all about rescuing a sinking market.
A few regions and cities with strong economic foundations and industry support may gradually stabilize over the next 12 months. New financing is flowing into central state-owned enterprises, for urban renewal and affordable rental housing. Sales performance remains the most important driver of credit for real estate enterprises. In the private sector, sales are almost all there is.
