What you need to know about China’s housing market

July 8, 2014 / By

Through much of the first half of 2014 analysts have cited the housing sector as the biggest risk to growth in China’s economy. However, over the last six to eight weeks we have grown more confident about the outlook for the sector based on what we have seen on the ground and by actions taken by the central and local governments.

You may recall my colleague Joe Zhou, JLL’s Head of Research for Shanghai, wrote a blog at the end of May on the parallels between the current performance in residential market with the dynamics in the 2011 – 2012 period. In the past several months we have seen the following significant actions:

  1. The PBoC has urged banks to increase mortgage availability for first time home buyers
  2. Local governments in some cities have eased restrictive measures in districts with the most challenging market conditions and they have increased the limits on borrowing from the Public Housing Fund
  3. In cities where developers have offered price discounts, buyers have been lured back into the showroom

Collectively, we believe these housing market supports, along with the various ‘mini-stimulus’ actions by the central government, will be sufficient to stabilise transaction volumes in the months ahead. If we are right, then the government has done enough to reduce the likelihood that the housing sector is a big risk to GDP growth reaching the targeted ‘floor’ of 7% in 2014.

To be clear, we expect price indicators to continue to show declines in most Chinese cities, but as long as mortgage availability remains supportive, these discounts will continue to attract buyers and transaction volumes in the coming months will stabilise. It will be on the back of this stable demand that property developers will have the confidence to maintain activity in their pipeline. And this leads us to have confidence in GDP growth coming in on-target in the low 7%s (in January, my forecast for GDP growth in 2014 was a below-consensus 7.3%).

Of course risks remain:

  • Credit availability for developers is still constrained and may lead them to slow-down activity
  • Last years’ most active source of capital – the trust lending market – is at a virtual stand-still now
  • Equity offerings could fail, thereby limiting capital for development and industry consolidation
  • By permitting some small, local developers to default, the central government could undermine buyer’s confidence to buy pre-sales
  • The failure of a wealth-management product or trust product held by individual investors could make buyers more risk averse

But we do not see these things as being likely, or if they do happen, we don’t expect them to destabilise the market or buyer confidence in the second half of 2014.

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