China's property market still faces challenges

China's real estate market is still expected to face supply-demand challenges, despite the central government last week unveiling a series of new measures to stabilise development in the property sector, according to Mysteel's latest report released on Thursday morning.

On 17 May, the People's Bank of China (PBOC) and the National Financial Regulatory Administration announced the abolition of mortgage floor rates nationwide, in addition to cutting the minimum downpayment ratios for individuals' commercial housing mortgages and reducing the loan rates of China's individual housing provident fund.

The minimum downpayment ratios for commercial housing mortgages for individuals have been lowered to 15% for first-home purchases and 25% for second-home purchases, while the loan rates of the individual housing provident fund were cut by 0.25 percentage points from 18 May, according to the PBOC.

In response, many local governments including those of three first-tier cities-Shanghai, Guangzhou and Shenzhen-quickly followed up the policies and launched some specific measures in accordance with local conditions to boost local property market conditions, Mysteel's report noted. This is to ensure the delivery of housing projects and accelerate the de-stocking of commercial housing, it said.

Though these measures may produce a pickup in house sales in the near term, the recovery may be limited compared with the same period last year, Mysteel pointed out in the report, adding that the domestic property market still faces many obstacles such as the large supply of housing stock and weak consumer confidence.

On the supply side, the total area of commercial housing for sale nationwide remains at a relatively high level. By end-April, inventories in the Chinese property market registered 745.53 million sq m, climbing by 15.7% on year, according to data released by the country's National Bureau of Statistics (NBS).

In order to ease the market pressure, local governments of regions with surplus commercial housing stock are allowed to buy some properties at reasonable prices and provide them as affordable housing.

However, given that they are facing their own pressure to reduce debt, whether local governments can raise enough money to ensure the long-term effectiveness of the policy is uncertain, according to the report.

Besides, the recovery of the domestic property market also depends on residents' willingness to increase leverage, as most of the new polices are introduced to stimulate housing demand, the report said.

The report showed that at present, residents' willingness to consume has declined significantly. China's resident leverage ratio has lost the impetus to move up since 2021, hovering at 60-64% over the past four years, Mysteel says, quoting data from the Research Center for National Balance Sheet.

The new polices could struggle to boost China's steel consumption in the near term, as the country's investment in the property sector continues to decline, Mysteel Global noted.

For the first four months of this year, total investment in China's property market registered yuan 3.09 trillion ($427 billion), sliding by 9.8% on year, as against the on-year decrease of 9.5% for the first quarter of this year, according to the latest NBS data.

Note: This article has been written in accordance with an article exchange agreement between MySteel Global and BigMint.