China’s housing market continues to grapple with significant challenges, despite recent government stimulus efforts aimed at reviving the sector.
According to Haibin Zhu, chief economist for China at JPMorgan, the market’s difficulties are far from over, and it may take years before stability is achieved.
Modest price increases fail to boost market
Data from China Index Academy, released on Saturday, shows that the average price for new home sales across 100 Chinese cities increased by just 0.11% in July.
This represents a slowdown from June’s growth of 0.13%. The marginal rise in new home prices highlights the ongoing struggles within the housing market, which remains far from a full recovery.
In contrast, resale home prices experienced a decline of 0.71% from the previous month.
Over the past year, prices for both new and resale properties have fallen significantly, with average prices for new homes dropping by 1.76% and resale homes by 6.89%.
This persistent decline underscores the depth of the crisis affecting China’s housing sector.
Government measures face scepticism
In an effort to address the housing crisis, Bloomberg reported that China is considering a plan to lower borrowing costs for homeowners by allowing refinancing on up to $5.4 trillion in mortgages.
However, analysts remain doubtful about the effectiveness of this measure in stimulating homebuyer sentiment or boosting overall consumption.
Winnie Wu, chief China equity strategist at BofA Securities, expressed concern that while lower mortgage rates might be intended to spur consumption, they could have unintended consequences.
“Some people think it will free up consumption — that’s only one side of the story,” Wu said. She explained that reduced mortgage rates could lead banks to lower deposit rates to protect their profit margins.
This, in turn, would diminish interest income on household savings, potentially offsetting any benefits from lower mortgage costs.
Refinancing plan unlikely to revive housing market
JPMorgan’s Haibin Zhu also questioned the efficacy of the refinancing policy in revitalising the housing market.
He noted that while the policy might provide some relief to existing homeowners, it is unlikely to address the fundamental issues affecting new home demand.
“Even if the mortgage refinancing policy materializes, it’s not a policy to revive the housing market,” Zhu said. He emphasised that the policy primarily benefits current homeowners rather than stimulating demand for new properties.
Wu echoed these concerns, stating that a rate cut alone is not a panacea for the housing market’s woes. “Rate cut is not the best policy, squeezing banks’ margins is not going to go very far,” she remarked.
Wu stressed the need for a more comprehensive approach to address the downward spiral in the housing market and to create a positive feedback loop to support economic stability.
Need for effective policy solutions
The outlook for China’s housing market remains pessimistic, with Zhu predicting that home prices are unlikely to stabilise before 2025.
The ongoing softness in the market, combined with a series of ineffective policy measures, suggests that significant challenges lie ahead for the sector.
China’s housing market is experiencing a prolonged downturn, exacerbated by a combination of declining home prices and faltering buyer sentiment.
While government initiatives such as mortgage refinancing are being considered, their potential impact remains uncertain.
Analysts continue to call for more robust measures to address the underlying issues and foster a recovery in the housing sector.
As China navigates these economic challenges, the effectiveness of its policy responses will be closely watched by investors and policymakers alike.
The current state of the housing market underscores the need for comprehensive strategies to support recovery and restore confidence in the sector.
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