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    China’s property measures give sales a boost, but only in big cities By Reuters


    By Liangping Gao and Marius Zaharia

    BEIJING/HONG KONG (Reuters) – China’s latest property support measures have boosted transactions in its biggest cities, but activity in smaller localities is struggling to get off the ground, pointing to more pain ahead for most of the country’s real estate market.

    On May 17, China cut minimum mortgage rates and downpayments and instructed municipalities to buy unsold apartments to turn them into social housing, sparking dozens of announcements from cities easing policies under the new guidelines.

    Small samples of transactions data and interviews with 10 real estate agents across China show the measures had an uneven impact throughout the country, reviving demand in mega-cities such as Beijing and Shanghai, but not in smaller places.

    This adds to concerns fuelled by poor home prices data on Monday that the downturn may have further to run, especially in the smaller cities where the quantum of excess supply is far greater than in larger cities, keeping pressure on policymakers to extend more support.

    The depressed property sector, which contributed nearly a fourth of gross domestic product before it slipped into crisis in 2021, remains a major drag on the $18 trillion economy.

    “For large cities, policies are more effective because demand and supply are more balanced,” said Zhang Zhiwei, chief economist at Pinpoint Asset Management.

    “Many of the small cities have a long-term structural oversupply problem that’s more difficult to resolve. It will take longer.”

    Analysts say Beijing needs to direct more funds to smaller city governments to reduce inventories and stabilise those markets, but most expect gradual support rather than any big-bang measures as authorities are wary of bailing out profligate developers.

    Data from real estate research firm China Index Academy showed the average daily transactions for second-hand homes between May 18 and June 5 was 27.7% higher than the April average in Shanghai and 8.10% higher in Beijing. Transactions for new homes were down 0.2% and 6.4% respectively, with agents saying older apartments in Beijing and Shanghai typically sell faster because they are in better areas.

    In Shanghai, one agent said inquiries for apartments have tripled since the city relaxed downpayment requirements on May 27, and noted 700-900 sales a day versus 500 previously. Another agent said home viewings increased 60%.

    One agent in Beijing said viewings in the capital also increased “a lot.”

    “Basically all agents are booked up,” said the agent in the capital, who only gave his surname Chen.

    ‘SOMETHING BROKEN’

    China Index Academy did not publish data for smaller cities, but separately released transactions data for the June 8-10 period showing a decline of 16% year-on-year for a group of 30 cities, including the largest ones.

    This suggests sales in smaller cities are still weak and buyers are still wary cash-strapped developers may not be able to complete the projects.

    “Smaller cities are doing a lot to incentivise people to buy more homes and it’s simply not working,” said Christopher Beddor, deputy China research director at Gavekal Dragonomics.

    “Something is broken. I think that something is the developers: you can’t have a property market turnaround without persuading homebuyers that they will receive presold units from developers.”

    Beddor says the property market would remain a drag on these small city economies in the long term, weighing on tens of millions of consumers and posing risks to small regional banks which are often highly exposed to sector.

    Smaller cities have lowered mortgage rates and minimum downpayments more than the bigger ones, but even the most aggressive cities have so far struggled to revive demand, agents said.

    Jiaozhou, a city of under 1 million people on the east coast, broke the 15% new downpayment limit for some buyers into two 7.5% payments up to two years apart to accelerate demand from those who needed an apartment but didn’t have enough savings. Shanghai and Beijing set minimum downpayments at 20% and 30%, respectively.

    But Jiaozhou property agents did not notice the impact.

    “My workload is about the same as before. Maybe we get more inquiries, but not many people actually book property tours,” said one agent who only gave her surname Ma.

    Authorities in the central city of Changsha, home to about 10 million in the indebted Hunan province, told developers to refund deposits unconditionally if buyers change their mind before finalising the transaction, hoping to embolden those on the sidelines to make bids.

    “Few people want to buy houses these days. Customers think the new policies are taken precisely because the market is not good,” a Changsha agent surnamed Xu said.

    Goldman Sachs analysts expect more easing measures in coming months.

    © Reuters. FILE PHOTO: Debris is seen in front of the apartment compound Taoyuan Xindu Kongquecheng developed by China Fortune Land Development, in Zhuozhou, Hebei province, China March 19, 2021.  REUTERS/Lusha Zhang/File Photo

    “However, considering persistent property weakness related to lower-tier cities and private developers, such easing measures may only lead to an L-shaped recovery in the sector in coming years,” they wrote in a note on Monday.

    ($1 = 7.2559 renminbi)


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