What’s behind the projected slowdown in China’s property market
A government program that subsidizes home purchases has allocated funds for 4.6M purchases this year, down 20% from 2018
In 2015, government authorities in China responded to a big drop in the Chinese stock market and other issues by reducing interest rates and lifting limits on home purchases, which boosted both property investment and the national economy.
But now, Beijing is resisting an expansion of a public program that has provided cash subsidies to help rural residents buy apartments in dozens of Chinese cities. Government officials are now wary of stimulating housing investment because it would add unwanted debt to China’s financial system.
Other factors holding down property values include a decline in the number of Chinese citizens moving from rural villages to cities, shrinking the market for newly built properties. In addition, fewer young families are looking for better homes as the Chinese population ages.
That said, the overall Chinese property market remains robust in many parts of the country. Home prices nationwide rose 10.6 percent in December from the level of December 2017. In the biggest Chinese cities, such as Beijing and Shanghai, home sales probably will remain strong due to their employment growth, so long as China can avoid a major economic recession.
But according to some economists, home sales in big Chinese cities are surging temporarily because developers have priced them aggressively due to expectations of a worse housing market next year.
Economists also say the outlook for property sales is declining in smaller Chinese cities as their population grows slowly or shrinks.
According to research by S&P Global Ratings, smaller cities accounted for almost two-thirds of all property sales throughout China last year, up from half of property sales in 2016.
Much of the credit for that trend went to the cash subsidy program to help rural residents buy units in new apartment buildings. Under the terms of the program, smaller cities borrowed from state banks to demolish blighted housing and to grant money to residents to purchase newer homes. But how those debts will be repaid is unclear, economists say.
This year, the program has allocated subsidies for 4.6 million home purchases, down more than 20 percent from the number in 2018. [Wall Street Journal] – Mike Seemuth