Divergence in Chinese Property Market Amid Stimulus Anticipation

China’s real estate sector is exhibiting a divergent trajectory without a likely swift recovery, despite potential additional stimulus policies, as noted by former advisor to the People’s Bank of China, Li Daokui, currently a professor of economics at Tsinghua University.

The Chinese property market faces weakening consumer trust towards real estate firms as leading developers Evergrande and Country Garden grapple with debt crises, the latter narrowly escaping default and the former filing for bankruptcy protection.

House prices in China recorded a decline of 0.1% year-on-year in July, following minor recovery in May and stagnation in June. Responding to whether Beijing’s response should be more assertive, Li implied that numerous unseen policy discussions are in progress.

Despite the visible lack of policy indicators, Li asserted numerous measures are likely to be implemented in the subsequent two months. These would aim to stabilize the finances of major property developers, thereby warding off potential financial panic.

The adverse conditions in the Chinese property market are not uniform, Li elucidated. Larger cities report an observed increase in property sales, contrary to smaller cities. The disparity occurs due to high income earners continuing to invest in more significant properties, whereas moderate salary earners display increasing hesitancy.

Li forecasts an uptick in property sales in third and fourth-tier cities and smaller apartment sectors within the coming six to twelve months, implying a prolonged recovery period for the property market.

In recent weeks, Beijing has attempted to buttress its flagging housing market by reducing loan interest rates and alleviating purchase and sale restrictions. The state-owned Securities Times recently called for lifting restrictions on property purchases in non-top-tier cities as soon as possible, citing the significant changes in the property market’s demand-supply dynamics. This advocates for the need to augment policy support to stimulate sales, thereby liberating demand stifled by strict housing policy.