The housing market in China appears to be turning around, but analysts predict that the rebound will be uneven and slow due to income insecurity and consumers' lack of faith in indebted developers.
According to Raymond Cheng, managing director of CGS-CIMB Securities, "we expect sales to improve gradually for the rest of the year, but we do not think sales will see a strong recovery due to concern over the long-term outlook for the property market and declining disposable income among households in China."
Due to increasing unemployment, a lack of bonuses in many industries following the economy's pandemic-ravaged performance last year, and salary reductions for civil officials, Cheng said, disposable income has decreased.
Due to a low base and improving market sentiment, developers' sales in March increased by 24% year on year and 32% month on month, according to Cheng, who cited statistics from CRIC, one of China's major real estate brokers.
However, he continued, March sales grew between 50 and 100% year on year for state-owned businesses and developers in good financial standing, while they decreased between 40 and 80% for struggling developers.
"The phenomenon could imply that homebuyers are still hesitant to buy properties from developers who have liquidity problems, as they may not be able to deliver the units on time," according to Cheng.
According to a survey from the China Index Academy released on Monday, the average price of new homes in 100 cities across the nation saw its first monthly gain in March since the second half of 2022, up 0.2% to 16,178 yuan (US$2,351) per square meter.
According to a report released by Goldman Sachs on Tuesday, a survey of 20,000 urban depositors across 50 cities by the People's Bank of China revealed that urban residents' readiness to consume and optimism over real estate values increased during the first quarter.
The apparent "turnaround in the housing market" was credited by the research firm Capital Economics to "substantial policy easing, including sharp declines in mortgage rates." According to a survey released by the company on Monday, China's zero-Covid regulation being lifted had a more significant impact on the housing market by significantly improving homebuyer sentiment.
The research stated that "constraints on developer access to financing have been eased recently too, ending a period of deleveraging and giving them more breathing room. But it probably won’t drive an imminent turnaround in construction activity."
China's gross domestic product (GDP) growth in 2022 was only 3%, falling short of the target of 5.5%. This year, the country wants to increase its GDP by about 5%.
Notably, several developers are still struggling with debt problems. For instance, research firm CreditSights said on Tuesday that Kaisa did not disclose any significant updates on its offshore debt restructure in its publication of 2022 financial-year results.
"All eyes are now on whether the developer will be able to follow in Sunac’s and Evergrande’s footsteps in formulating an offshore debt restructuring plan, which would be the first meaningful step in lifting itself out of its current predicament," according to CreditSights.
"Kaisa reported a very weak set of results for the financial year 2022, no surprise given the company’s profit warning in late March. This was highlighted by its cash-strapped situation and the severe deterioration in its revenues and gross profit figures."
By fLEXI tEAM