Can China save its property market and economy amid fastest-spreading outbreak to date?
Zaobao correspondent Yang Danxu takes a look at China's ailing property market and the various measures taken by property companies and the authorities to boost sales and ensure that homes are completed and handed over to buyers. While the intention is good, will they work under the current Covid-19 situation?
China's property companies previously gifted homebuyers pigs and accepted garlic as down payment. Now they have come up with another sales tactic - ten years of free subway travel.
Chinese media recently reported that a company in Nanning, Guangxi, has promised ten years of free subway rides with a purchase of any of its housing units.
Property analysts estimate that the promotion is valued at 30,000 RMB (US$4,200). While it is not a huge sum, the offer of free subway travel has gained significant attention. Evidently, the developer had given much thought to the promotion.
Bartering farm produce for a home
Given China's weak property market, property companies have come up with all sorts of tactics to sell homes this year. In June, a company in Henan accepted wheat as a down payment, whereby homebuyers received a rebate of about 2 RMB for each jin (600 grams) of wheat, up to a maximum of 80,000 jin or 160,000 RMB.
... prices of new and resale properties also dipped in first-tier cities such as Beijing and Shanghai, as well as second-tier cities such as Tianjin and Nanjing.
This was followed by a wave of wacky sales tactics of accepting garlic, watermelons and peaches as down payment, with some small cities even offering jobs with home purchases, and government agencies tasked to sell homes. A Chinese netizen mocked that "the universe's ultimate is to become a civil servant; a civil servant's ultimate is to help developers sell homes".
Property companies and local governments have come up with all kinds of unorthodox ways to boost sales. Many of them are gimmicks, but the huge pressure faced by the property market is real. Official figures released last week show that prices for new properties in 70 medium and large cities in China fell by 1.6%, the biggest drop in seven years and a decline for the sixth consecutive month.
The fall in property prices is no longer seen only in third- and fourth-tier cities - prices of new and resale properties also dipped in first-tier cities such as Beijing and Shanghai, as well as second-tier cities such as Tianjin and Nanjing.
Boosting property market to grow the economy
Under pressure to stabilise the property market, officials have stepped up their efforts after the 20th Party Congress. The People's Bank of China (PBOC) and China Banking and Insurance Regulatory Commission (CBIRC) released a 16-point plan this month to salvage the property market, encompassing the financing of property companies and the completion and timely handover of homes.
On 21 November, the two agencies announced the provision of 200 billion RMB to support bank loans for delayed pre-sold residential projects, with the funds earmarked to ensure that units are completed and handed over.
... the market believes that this is still an important step in rescuing the property sector as it would at least reverse the economic slowdown and promote a "soft landing" for the economy.
On the same day, during the Financial Street Forum, PBOC governor Yi Gang expressed his support for the steady and healthy growth of the property market, stressing that a virtuous cycle in the property market would be critical to economic development.
Some analysts believe that with the close of the 20th Party Congress and the Chinese Communist Party's new leadership team made up of Xi Jinping loyalists, there will be more room to ease policies. The authorities' recent measures to boost the property market and alleviate the high-pressure Covid-19 policies of the last three years signal that the property market and Covid-19 controls are gradually easing, and that authorities are shifting the policy balance towards growing the economy.
However, analysts said that while recent measures are focused on easing financing for developers, in terms of shoring up the property market, there is no direct stimulus for home purchases, and it also does not mean that China will reverse property market regulation or change the policy of "housing for living in rather than speculation". But the market believes that this is still an important step in rescuing the property sector as it would at least reverse the economic slowdown and promote a "soft landing" for the economy.
'Protracted and costly' reopening
In comparison, the anti-Covid measures make it tougher to eliminate economic disruptions. After the Chinese authorities released "20 measures" to optimise existing pandemic controls on 11 November, China is seeing its fastest-spreading outbreak to date, affecting major cities such as Beijing and Chongqing.
Data from Nomura Holdings show that 48 cities in China are currently imposing some sort of restriction on people's movement at the district level or on a larger scale, affecting roughly one-fifth of China's total economic output.
Facing soaring Covid-19 cases, local authorities seem at a loss of what to do if they are to avoid implementing large-scale lockdowns and mass testing. Numerous indicators show that within just ten days, China's easing of the dynamic zero-Covid policy has already run into problems, and various regions with serious outbreaks have backtracked and returned to the prior stringent anti-Covid measures.
Data from Nomura Holdings show that 48 cities in China are currently imposing some sort of restriction on people's movement at the district level or on a larger scale, affecting roughly one-fifth of China's total economic output. Nomura economists also reported on 22 November that China's path to reopening would be a "protracted and costly" one.
This "cost" is not only about the people's health and safety, which authorities have repeatedly emphasised, but also the collapse in confidence due to the economic downturn. China's economic growth in the first three quarters of the year fell significantly short of the growth target of 5.5% that authorities set in March.
While high hopes are pinned on Q4, strong growth would be difficult to achieve amid the current pandemic situation, the gloomy housing market and the flip-flopping of the Covid-19 policy.
China's Covid-19 policy could enter a phase of constant vacillation, which means the pandemic will continue to disrupt the economy.
Optimists believe that as soon as the country resolves to end its stringent anti-Covid policy, with China's massive market and strong growth potential, the economy will quickly recover and return to the rapid growth seen prior to the pandemic. However, it is easier said than done to abandon the tough measures given the current situation.
China's Covid-19 policy could enter a phase of constant vacillation, which means the pandemic will continue to disrupt the economy. On this bumpy road to reopening, let's hope that confidence and patience will not run out.
This article was first published in Lianhe Zaobao as "花式卖房下的经济困境".
Related: Bartering garlic for homes: China's uphill fight to revive the real estate market | Can SOEs' property buying spree save China's ailing property market? | Can China achieve a soft landing for its housing market? | How China's housing market landed in the deep freeze | Property conundrum: Chinese society disagrees over how much property prices should fall | Will clampdowns on China's property sector lead to economic turmoil?
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