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Treasury & Capital Markets
China property crisis unlikely to end in 2024 despite support measures
Home prices tipped to fall 5-6% this year as transactions shift to secondary market
Yuki Li 24 May 2024

Chinese authorities have unveiled a raft of measures to stabilize the country's ailing real estate market, but the results so far have not been as optimistic as expected as prices continue to fall.

The market, which has been shrinking since 2022, is not expected to reach its bottom in 2024. The market dynamics are changing, with a noticeable shift from primary to secondary markets.

National primary sales, including residential, non-residential, and social housing, are expected to drop by 10%-15% in 2024 to stabilize at between 10 trillion yuan and 10.3 trillion yuan (US$1.38 trillion and US$1.42 trillion). Primary residential sales could shrink by 16%, according to S&P Global.

Secondary residential sales, on the other hand, are projected to rise by 15% this year. “This implies that some homebuyers still possess purchasing power, but they are concerned about delivery issues of pre-sold houses,” says Esther Liu, director at S&P Global.

To address the challenges in the primary market, the government is promoting sales of "social housing", also called "affordable housing" or "low cost housing". S&P Global forecasts that social housing sales could account for 20% of total primary housing sales in tier 1 and tier 2 cities by 2026, up from 8% in 2023.

The People’s Bank of China announced on May 17 that it would provide 300 billion yuan to 21 Chinese banks to lend to local state-owned enterprises (SOEs) with an interest rate of 1.75%, in a bid to help them buy unsold apartments, and ultimately to help developers get more funding to deliver pre-sold properties. The units will be used as affordable housing to rent or sell.

Meanwhile, the lacklustre buying sentiment in the market continues to impact home prices negatively. National home prices are expected to drop further by 5%-6% in 2024. Although transactions in the secondary market have increased, prices have fallen. Tier 1 cities might experience a smaller decline due to stronger demand and greater consumer confidence, but prices in lower-tier cities are expected to continue to decrease.

Moreover, an increase in social housing for sale will also contribute to lowering average home prices, according to S&P Global analysis.

Some indicators could signify the stabilization of home prices. “Firstly, secondary market prices must stop falling sharply, as these are more market-driven compared to the more controlled primary home prices,” says Liu. “Secondly, as the price gap between primary and secondary transactions starts to narrow, that will also be a significant indicator. The third sign would be an increase in property transaction volume.”

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