China’s stimulus could focus on its ‘dire’ property sector. Here’s what economists expect

Real Estate

Unfinished buildings, abandoned part way through construction, in Wuxi, China, on Tuesday, May 16, 2023. China’s economic recovery is losing momentum after an initial burst in consumer and business activity early in the year, prompting calls for more policy stimulus to bolster growth. Photographer: Qilai Shen/Bloomberg via Getty Images
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Weak economic data out of China despite an expected rebound has prompted talk that Beijing will have to boost fiscal stimulus — and some economists say the property sector could be in focus.

Prices in China’s housing market has been on the rise, but sales have slowed, research firm China Beige Book said in a May report.

Citi economists said a property-focused stimulus package may be imminent, and pointed to a local media report that showed deteriorating sentiment in resale home listings and a decline in transaction volumes. //

“The stimulus package could be centered on the property sector, with expansionary monetary and fiscal policies to keep up growth momentum,” Citi economists led by Xiangrong Yu wrote in a Tuesday note.

“We think the overall policy tone for this sector could transfer from stabilizing to cautious stimulating. More efforts would be needed to stop a downward spiral,” they wrote.

Critical two months ahead

Citi economists say the stimulus could come as soon as June and more significant measures may be introduced in China’s Politburo meeting in July.

“The coming two months will be a critical window to act,” they said.

The economists laid out some options for a property-focused stimulus package from China: more mortgage rate cuts; funding support for property developers; and lowering down payment ratios for second-home purchases.

These steps would follow a potential cut in medium-term lending facility rates or reserve requirement ratio, the report said. The measures would boost housing demand in families, especially those with two or more children outside of core regions of China.

“The policymakers will probably have to reconcile any new stimulative measure with the overreaching guideline that ‘housing is for living, not for speculation,’ even though the mantra could be omitted in upcoming policy meetings,” Citi economists wrote.

Don’t expect a ‘bazooka’

Nomura’s Chief China economist Ting Lu said “the situation of China’s property sector appears dire.”

The Japanese investment bank doesn’t expect a “bazooka” stimulus package but predicts it will be introduced in a cautious manner.

“We believe measures will be introduced in a piecemeal step-by-step manner, and be implemented mainly in tier-2 cities,” Nomura economists wrote.

They pointed to the latest wording from top policymakers and their emphasis on “security” – how this is an indicator for the scale of a stimulus package to come.

“With decision making now highly centralized, and with an emphasis on ‘security,’ efforts to
pass a support package for the property sector may progress only gradually and could even be easily blocked for various non-economic reasons,” they wrote.

Nomura expects the so-called “rescue package” to be rolled out slowly.

“Amid worsening growth prospects, we expect Beijing to eventually announce a rescue package, although most likely these supportive measures will be gradual,” they wrote.

“The best we can expect are policies that finally stem the downward spiral and stabilize new home sales at slightly above current levels.”

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