China’s Home Market Shows Sign Of Thawing As Prices Slowed Their Declines In December With Easier Loans And Policy Support

The prices of China's newly built homes declined at a slower rate in December, offering a bit of relief to dozens of property developers that are struggling with a cash crunch and mounting debt.

The average price of new homes across 70 cities fell by 0.28 per cent in December from a month earlier, a slower rate than the 0.33 per cent monthly drop in November, according to calculations by E-house China R&D Institute in Shanghai, based on data released on Saturday by the National Bureau of Statistics.

China's monetary authorities cut the reserves that banks had to set aside by 0.5 percentage point in early December to release 1.2 trillion yuan (US$189 billion) into the banking system, followed two weeks later by a cut in the prime rate for one-year loans. With the additional liquidity, local authorities took their feet off the brakes on property purchases, allowing buyers to re-enter the market to soak up the unsold homes that litter the country.

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That bolstered new home prices by 2 per cent in December, compared with a year ago, indicating that "the constant pessimism has been slightly curbed, as [looser] credit policies started to play a positive role," said E-house's research director Yan Yuejin, adding that growth may return in the second quarter. November's prices rose 2.4 per cent from the same month in 2020.

A residential area in Beijing, on10 January 2022. Photo: EPA-EFE © Provided by South China Morning Post A residential area in Beijing, on10 January 2022. Photo: EPA-EFE

The slowing decline in home prices raises hope that a bottom is in sight for a government-led clampdown that began in the summer of 2016 in an industry that contributes to at least 15 per cent of the country's economy.

For heavily leveraged developers like China Evergrande Group, Kaisa Holdings, Sunac China Holdings and dozens of others, home sales are critical for their struggle to survive US$118 billion of offshore debt in 2022, according to an estimate by Fitch Ratings.

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China's policymakers have begun to cut the US$1.7 trillion property industry some slack, after the ruling party's Politburo emphasised the need for the healthy development of the sector in December.

Loans for buying distressed real estate assets would be excluded from the central bank's so-called three red lines of debt limits, a critical step to let funds clean up the mountain of assets strewn about by bankrupt developers.

As many as 15 Chinese cities reported rising home prices in December, six more than a month earlier, according to calculations by Zhuge Zhaofang, an online property agency based on the NBS data. Five cities recorded flat prices in December, three more than in November. Fifty cities reported price drops, nine fewer than a month earlier.

China's US$1.7 trillion housing market was about seven times the size of the US market in 2019. Residential property sales in China may fall 10 per cent in 2022, S&P predicted on Monday, with more of the pain felt in the first half.

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This article originally appeared on the South China Morning Post (www.scmp.com), the leading news media reporting on China and Asia.

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