China introduced a comprehensive property rescue package late last week in an effort to support its struggling property market.
The measures include reduced down payment ratios, the removal of the mortgage rate floor, and a 300 billion yuan (US$4.1 billion) re-lending facility by the People’s Bank of China (PBOC) to enable state-owned enterprises (SOE) to purchase unsold homes.
Despite being the most aggressive measure by authorities to date, analysts remain cautious about whether the rescue package would be enough. For starters, the inventory of unsold property is massive: estimated to be at 28 trillion yuan (US$3.9 trillion) by Barclays and at 30 trillion yuan (US$4.1 trillion) by Goldman Sachs.
“The new property measures are unlikely to deal with the full overhang of unsold homes given the PBOC’s new facility’s initial size,” Mansoor Mohi-uddin, chief economist of the Bank of Singapore said in a note. “But the aid is likely to be scaled up if it proves successful.”
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This is compounded by weak sentiment among buyers, as private banks noted in this report from Finews Asia.
“The issue in first-tier cities is weak sentiment, not overcapacity […] especially in good school districts and upper-middle-class areas,” UBP senior economist Carlos Casanova wrote in a recent note.
Moreover, the rescue package may also introduce new risks into the system, even if it achieves its intended objectives. Casanova points out that while the policy addresses the problem of problematic inventories in third-tier cities, it could lead to capital misallocation and weakening fundamentals for SOEs and state banks.
Information for this story was found via the Financial Times, CNN, Finews Asia, and the sources and companies mentioned. The author has no securities or affiliations related to the organizations discussed. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
