China’s property sector set for modest demand recovery in 2023
Property sales are expected to slip by a median of 8% this year, compared to a slump of around 25% in 2022, as economic activity, household income and consumer confidence are seen rebounding in H2
China’s deeply troubled property sector is set to see home sales fall for the second straight year in 2023, but the pace of declines will ease thanks to state support measures and the liting of the government’s strict ANTI-COVID policies.
Property sales are expected to slip by a median of 8 per cent this year, a Reuters survey of eight economists and analysts showed, compared to a slump of around 25 per cent in 2022, as economic activity, household income and consumer confidence are seen rebounding in the second half.
Economists and analysts believe policymakers will roll out more support measures to stimulate home demand this year, as part of Beijing’s overall goal to bolster the $17-trillion economy ater a sharp Covid-induced downturn in 2022.
Those policies could include further lowering of mortgage borrowing rates and downpayment requirements, as well as relaxing home purchase restrictions in top-tier Chinese cities, they added.
Hopes of a pickup in the economy later this year have been fuelled by China’s dismantling in December of its stringent ZERO-COVID policy, which likely dragged GDP growth down to just 3% last year, one of its worst years in almost half a century.
But the reversal has triggered a wave of COVID infections, which are expected to cause further economic disruptions and strain households for at least a few more months.
China’s property sector, which accounts for a quarter of the economy, was badly hit last year as cash-squeezed developers were unable to finish apartment construction, prompting a mortgage boycot by some buyers. Citywide lockdowns to control the pandemic and layoffs also weighed heavily on buyer sentiment.
Property investment in November fell the fastest since the statistics bureau began compiling data in 2000, down 19.9 per cent on year.
“For 2023, we expect a sequential rebound in both sales and property new starts, as property policies continue to ease, and re-opening ater COVID leads to a rebound in economic activity and household income,” said UBS chief China economist Tao Wang.
“Although property sales and starts will likely be slightly weaker than in 2022, property will be much less of a drag on the economy than in 2022.” There are some early signs of a turnaround.
New-home sales rose more than 20 per cent over the three-day New Year holiday from a year-ago due to promotions, support policies and the gradual release of pent-up demand ater high COVID-19 cases, the China Index Academy said this week.
The academy said major cities such as Beijing and Shanghai saw a rise in sales compared with last year’s New Year holiday, but sentiment remained at low levels in most small cities.
Jack Yang, 31, was among the potential buyers who visited show flats during the holiday. He said recent policies showed the market was really bad and that authorities were desperate for people to buy homes.
“From my previous experiences it would not be wrong to follow the direction of policymakers in making decisions,” Yang said.
Shares in embatled Chinese property developers have gained 86 per cent since the trough in October, buoyed by a string of property easing measures and the COVID policy u-turn.
An index tracking high-yield dollar bonds of Chinese developers has more than doubled from its Nov. 3 low, but is still 30% lower than the beginning of this year, and 58 per cent lower than its peak in May, 2021 ater a series of defaults.
“I think the market has been ruthlessly efficient in repricing the positive policy noises that have come through,” said Tim Gibson, co-head of global property equities at Janus Henderson Investors.
“In terms of what the market needs to see, I think that really goes back to the point on the demand side.”
Gavekal Dragonomics expects a rise of 5 per cent-10 per cent in property sales this year, while Citi has forecast a 21 per cent drop, citing time needed for job and home price expectations to recover, as well as a drop in new supply.
Sheldon Chan, a Hong Kong-based portfolio manager of T. Rowe, said there’s chance that the property recovery “may be slower than that the market seems to be pricing or potentially pricing”.
“We may be close to see some botoming out in housing demand …but I don’t think we’re quite there yet,” he said.
The latest China Beige Book private economic survey was more blunt: “But forget a return to days of old: it will take considerable policy support in 2023 just to pull property out of the guter.”
Despite hopes of a modest improvement in home demand this year, the sector’s recovery is expected to be a long and bumpy one, still weighed down by excesses of the past.