Three weeks after Beijing announced "historic" measures, including the central bank providing 1 trillion yuan in extra funding, easing mortgage rules, and local governments planning to purchase apartments to clear excess supply, all in a bid to stabilize the worsening downturn in residential property markets, faith in the housing recovery has faltered yet again, as property stocks have tumbled into a bear market.
Between mid-April and mid-May, investors hoped that more decisive government intervention in the world's second-biggest economy to shore up the property market would slow the descent. New measures were announced on May 17, and since then, after a 73% surge in the Bloomberg Intelligence gauge of Chinese developers, the index has tumbled into a bear market.
The property market downturn has been ongoing since 2021. A series of developers have defaulted on debt, a plethora of idled construction sites, sliding home sales, high inventory levels, and waning confidence in the Chinese population about an economic revival.
In a recent note titled 'China Unveils A Housing Market Bailout: Here's What's In It, And Why It Is Still Not Enough,' we cited a Goldman note that underscores the need for more housing easing efforts. Judging by the index above, that's potentially what investors are selling property stocks, emphasizing the urgency for further government intervention.
Here's more from Goldman:
Expect more housing easing efforts down the road — especially on the demand side — with funding and implementation as key for the effectiveness of the property rescue plan. On the funding, a recent Goldman analysis suggests any game-changing housing easing measures (including those for housing destocking) would require significantly more funding than available thus far, while many inland local governments remain financially stretched after the three years of zero-Covid policy and amid the prolonged property downturn. This will require a larger top-down funding scheme from the central government, beyond the RMB300bn relending quota. Moreover, strengthened fiscal discipline and financial regulation may dampen some officials' incentives for more concerted and forceful policy efforts. Upcoming policy events — such as the July Politburo meeting, the Third Plenum, and ad hoc meetings/announcements by major authorities (e.g., the State Council, NDRC, MOF, MOHURD, PBOC, SASAC) — will be worth monitoring closely, especially on solutions to address funding and implementation bottlenecks.
In a separate note, Jeff Zhang, an analyst at Morningstar, wrote that the latest economic data in the country shows "there's not much improvement in property fundamentals," adding, "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."
However, in a note, Goldman's Rich Privorotsky told clients Thursday morning, "China property has now dropped nearly 20% of its highs as stimulus/policy pivot hopes have faded (probably time to think about getting long again)."
