China Property Navigator 3Q22: Housing Policies

Nicholas Chen - Analyst - Chinese Corporates
Sandra Chow, CFA - Co-Head of Asia-Pacific Research
Nicole Chua - Analyst - Chinese Corporates

  • This report is the first installment of our 3Q22 China Property Navigator. It summarizes the housing and credit policies announced in the 2Q22 and 3Q22.
  • Local governments continued to ease housing policies in 2Q22 and 3Q22. Policies that were implemented across multiple cities included: (1) easing housing provident fund (HPF) loan limits and withdrawals; (2) cutting mortgage rates; (3) reducing down payment rates; (4) providing support for larger families; (5) removal of home purchase and home resale restrictions; and (6) encouraging second home purchases.
  • However, policies specifically relating to Chinese developers have been mixed. On the one hand, cities have been easing land bidding deposit requirements and extending land payment timelines for developers. On the other hand, several local governments have also been tightening their oversight of pre-sales funds in the developers’ escrow accounts, in contrast to the easing attitude that was witnessed at the start of the year. This does not come as a surprise: the mortgage payment revolt on the back of stalled housing projects has likely prompted local governments to tighten escrow account requirements to ensure that sufficient funds are allocated for the completion and eventual delivery of houses to homebuyers.
  • Several media reports have reported that the Chinese regulators are introducing credit policies to aid the developers. However, there appears to be a diverging attitude adopted by the Chinese authorities towards different developers. For the “higher quality” names, the liquidity support rendered towards them is likely meant to help them tide through the ongoing crisis. For the distressed and defaulted developers, however, the liquidity support is targeted at helping those developers complete their unfinished projects, rather than to aid them in servicing their debt obligations.
  • Looking ahead, we think more easing measures may follow given the lack of any meaningful recovery in the home demand. That said, we also think that the Chinese regulators are cautious of adopting an “all-out easing” approach as the “房住不炒” or “houses are for living in, not for speculation” mantra is still being reiterated by the Chinese government. Stable home prices, land prices and market expectations are still overarching objectives for the government, which is likely keen to prevent housing speculation and uncontrollable home price increases from returning to the China property market.
  • Uncertainty and volatility have become increasingly entrenched in the entire China property sector, amid a growing number of defaulted developers coupled with the recent mortgage payment boycotts that have weakened homebuyer sentiment in China. Despite a slew of easing measures having been introduced since 2H21, home sales in China have yet to experience a significant and sustained recovery. This is evident by how total sales of commercial residential buildings in China (excluding affordable housing) have still been exhibiting year-on-year ( YoY ) declines every month, both on a monthly and cumulative basis. Although some time is required for the easing policies to filter through the system, we think that the unwillingness of homebuyers to purchase homes has contributed more to the dampened home demand in China in recent months. Concerns as to whether the housing projects would eventually be completed and delivered have made homebuyers apprehensive about purchasing houses.
More Support Measures, but Completion and Delivery of Houses Take Precedence over Creditors

With most developers plagued by tight liquidity positions, a growing number of development projects had become stalled owing to insufficient funds. The halting of project construction have prompted many homebuyers to engage in the wholesale boycott of their mortgage payments, perhaps to showcase their frustration. As a result, various measures have been introduced by the Chinese authorities with home completion and delivery in mind, to rectify the ongoing mortgage payment crisis and alleviate the instability that has arisen from it.

Over the past few months, several support measures from the Chinese regulators have been reported by the media to aid the developers in getting their stalled projects back on track. This included: (1) local government bailout funds in cities such as Zhengzhou in Henan province; (2) state-backed property bailout fund; and (3) special loans from policy banks. More recently in end September, the China Construction Bank (CCB) announced that it will set up at RMB 30 bn ($4.2 bn) fund to invest in the existing assets of developers, with the aim of transforming them into rental housing in order to increase the supply of affordable rental housing. However, no specific developers or projects were mentioned by CCB.

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