Builders work on the construction site of a housing project in Shanghai. [Photo/China Daily]

The sector may see the second quarter bottoming out, with policies playing a key stabilizing role

House prices in most of China’s 70 large and medium-sized cities fell month-on-month in December, but the housing market is expected to recover gradually as the country recently implemented supportive policies.

In December, 55 of the 70 cities experienced monthly declines in new home prices, compared with 51 in November. New home prices in first-tier cities were flat month-on-month, compared with a 0.2 percent decline in November, Sheng Guoqing, chief statistician with the urban division of the National Office, said Monday. of Statistics.

“China’s real estate market is expected to bottom out in the second quarter of 2023 and major cities are likely to take the lead in stabilizing the market,” said Lian Ping, chief economist at Zhixin Investment and director of Zhixin Investment Research Institute. .

“General housing finance policy will pick up further this year to boost housing demand. Mortgage rates are expected to remain at a record low and commercial banks will speed up home loan extensions,” Lian said.

Home prices in some of the most dynamic housing markets are likely to stabilize and rise in the second quarter, while the fall in land prices may abate and property investment pick up later, he said.

China has put forward a series of policies to boost the property market in a bid to revive the real economy. Its financial regulators recently drafted and proposed a plan to improve the balance sheets of quality property developers facing liquidity problems, as part of efforts to defuse financial risks in real estate.

The plan is aimed at improving the cash flows of quality property developers and guiding their balance sheets back to a safe range, Zou Lan, head of the People’s Bank of China’s monetary policy department, said at a press conference on Friday. .

The PBOC, the central bank, is considering launching various structural monetary policy instruments to stabilize real estate operations, Zou said.

“With policy effects on both the supply and demand sides of the real estate sector continuously being released, quality real estate developers will be revitalized,” said Wen Bin, chief economist at China Minsheng Banking Corp.

“The sector is likely to embrace a wave of restructuring and acquisition activity, and risks to the sector will be further mitigated. In addition, housing finance will further recover, promoting a slight decline in purchase costs housing,” Wen said.

The housing market is expected to bottom out and recover in the first half. At that point, the real estate sector will once again have a stabilizing effect, rather than a drag effect, on the economy, he said.

The central bank and the China Banking and Insurance Regulatory Commission have also decided to establish a dynamic adjustment mechanism on mortgage rates for first-time homebuyers to further support the real estate sector.

For cities where new home sales prices fall month-over-month and year-over-year for three consecutive months, the mortgage rate floor may be lowered or phased out for first-time homebuyers, the PBOC said. .

Yan Yuejin, director of the Shanghai-based China E-house Research and Development Institution, said 35 out of 70 cities meet the requirements to lower the mortgage rate floor for first-time homebuyers, according to data from October to December.

“The current New Construction Commodity Residential Housing Price Index indicates that housing prices have the foundation to stabilize, but the foundation is not yet strong enough,” Yan said.

The thought of the authorities on the stabilization of house prices is clear. On the supply side, measures are expected to be announced soon to improve the balance sheets of quality promoters. As the money comes into place, real estate prices will stabilize. On the demand side, a new round of policies to stimulate home buying is underway, he said.

House price stabilization will remain a vital task in 2023. It is an essential condition for stabilizing market expectations and promoting the steady development of the property market, he said.