China’s property troubles are getting worse and need Beijing’s support

BEIJING — China’s property market, which makes up a substantial chunk of the country’s economy, needs more government support to prevent it from deteriorating further, analysts said.

Existing home prices fell in October by the most since 2014, while outstanding property loans fell for the first time in history, Larry Hu, chief economist at Macquarie, said in a note Friday.

That indicates increased drags on both the demand and the supply side.

Policy so far has focused on boosting demand. But the government hasn’t “addressed the most important issue: credit risk related to developers,” according to a Macquarie report.

“Without a lender of last resort, a self-fulfilled confidence crisis could easily happen as falling sales and rising default risks reinforce each other,” the report said. “Indeed, some large developers have recently seen their credit risks rising rapidly.”

Beijing has sought to reduce real estate developers’ high reliance on debt to fuel growth, while tamping down on a surge in home prices that has made buying an apartment in major cities prohibitively expensive for many young Chinese households.

UBS analysts estimated that real estate and related sectors now account for about 22% of China’s gross domestic product, down from around 25% levels seen in recent years.

Since November 2022, Chinese authorities have rolled out a raft of measures aimed at improving developers’ access to financing and reducing mortgage rates.

Recent figures indicate that property sector troubles are only worsening.

The average price for existing homes across 70 major cities fell by 0.6% in October from the prior month, compared with a 0.5% drop in September, with China’s largest cities leading declines, Nomura analysts said in a report last week citing official data.

That’s concerning since larger cities are expected to have a more sustained demand for homes due to the availability of jobs.

“China’s property sector has yet to bottom out,” the report said. “Markets appear to have been a bit too optimistic about the property stimulus policies over the past two months.”

The People’s Bank of China late Friday announced it held a meeting with other financial regulators to allow lending to real estate developers that are “operating normally”, among other signals of support. The authorities also called for developing affordable housing, according to the readout.