The contraction in China’s home sales and property investment both deepened in October, a steeper downturn that may push the government to do more to shore up the struggling housing market.
Investment in property development fell 9.3% in the first 10 months of 2023, compared with a 9.1% decline in January-September, data published Wednesday by the National Bureau of Statistics showed. Economists surveyed by Bloomberg had forecast it stabilizing at a drop of 9.1%.
Residential property sales fell 3.7% in January-October compared to the same period in 2022, a steeper fall from the 3.2% decline in the first 9 months of this year.
“Clearly, the property sector remains a weak spot for the economy, which requires further support in the foreseeable future,” said Zhou Hao, chief economist at Guotai Junan International in Hong Kong.
That worsening picture comes as Beijing plans to provide at least 1 trillion yuan ($138 billion) of low-cost financing to the nation’s urban village renovation and affordable housing programs to help the property market, Bloomberg News reported. The central bank would inject funds in phases through policy banks. Officials are considering options including so-called Pledged Supplemental Lending — a cheap form of policy loans for targeted areas such as housing and infrastructure — and special loans.
Economists are debating the potential impact of such a plan. While the People’s Bank of China’s previous use of the PSL tool between 2014 and 2019 for the so-called “shantytown redevelopment” program successfully turned around a property downturn and revived economic growth, it also fueled a surge in home prices. The value of residential property sales soared 17% in 2015 and 36% in 2016 respectively, in contrast to the 8% decline in 2014.
That was when the PBOC introduced the cheap central bank loans, which helped local governments and developers demolish residents’ old homes and also provide them cash compensation they could used to purchase new or existing apartments.
With details of the new plan still unclear, some economists say its impact may fall short of the previous efforts. That’s because the new programs would mostly take place in some of the largest cities in China. Those represent a much smaller share of the overall property market than small cities, where the shantytown project took place, according to Jacqueline Rong, chief China economist at BNP Paribas SA.
The urban village projects could also be more difficult to execute and take a longer time to complete, she said during an interview with Bloomberg TV on Wednesday.
Restoring Confidence
More may need to be done to restore homebuyers’ confidence in the market.
“The biggest hurdle for a real property recovery is the large scale of pre-sold but unfinished homes in low-tier cities,” Lu Ting, chief China economist at Nomura Holdings Inc., wrote in a note Wednesday. “We believe Beijing will eventually need to reach into its own pockets, with printed money from the PBOC (such as PSL), to fill up the vast funding gap and secure the delivery of pre-sold homes.”
In a sign of how continuing woes in the property sector are affecting the rest of the economy, output of cement fell 1.1% so far this year and plate glass fell 7.6%. Sales of excavators in China also continue to be weak, dropping 43% in the first 10 months of 2023.
The property sector, which makes up about 20% of China’s gross domestic product, continues to be a drag on the broader economy. Real estate is a major store of wealth for Chinese households and a decline in the price and value of homes will likely make people less willing to spend.
“Consumer activities remain a little bit downbeat in China because of the poor consumer sentiment as well as the negative wealth effect coming from the property market,” said BNP’s Rong.
Retail sales in October climbed 7.6% from a year earlier, the National Bureau of Statistics said Wednesday, a better-than-forecast result aided in part by favorable comparisons to a weak month in 2022. The month also captured the week-long Golden Week holiday period.
October home price data is scheduled to be released on Thursday.