Slow Recovery in China Property Sector Despite Policy Support

Our equity analysts prefer developers backed by state ownership.

Kate Lin 18.08.2022
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Kate Lin: Welcome to Morningstar. Even as Chinese property developers continue to battle a cash crunch, these companies are facing yet another crisis as mainland homebuyers refuse to pay mortgages on unfinished housing projects. On the other hand, the market expects easing policy measures to revive the ailing sector. Is the worst over for Chinese property sector? Cheng Wee Tan, Senior Equity Analyst at Morningstar, is here to tell us.

Hi, Cheng Wee. China's real estate sector is heavily influenced by policies. Do you think the policy support is enough right now for a sustained recovery?

Cheng Wee Tan: Right. The sector is definitely very highly influenced by policy right now. So, we have seen a fair bit of easing policies being implemented, especially at the local government level. But in terms of the whole sector recovery-wise, we still expect it to be slow given that, for example, the lower mortgage rates are not adequate to support rapid recovery once lockdowns recede. I think the essence of our view on this is that the lockdowns are affecting income and livelihood with a drop in consumer confidence. Hence, we expect buyers to be cautious against taking out more mortgage for home purchases. So, with that, we are still expecting the physical market to be weak. So, all in all, we think the whole market is hoping for all the stakeholders to come together to provide a more coordinated effort to address the liquidity issue of developers and also the home completions.

Lin: Right. So, how will the recent mortgage boycott alter the rebound and recovery trajectory?

Tan: Right. Recently, like in May and June, we have seen some green shoots of recovery. But given the onset of the spreading of the mortgage boycotts, we are seeing the pre-sales in July coming down again. We just kind of like to throw a spanner in the works in terms of the market recovery.

Lin: So, lastly, why does it still make sense to stick with state-owned developers?

Tan: Right. Our view is that we are still placing our preference towards SOE developers, especially if we look at the sector fundamentally because of the liquidity issues that will trouble developers. The SOE developers in terms of sales rankings have also been going up for the first half of this year. And also, even if you look from the buyer sentiment-wise, I think given the trouble, developers' issues the buyer sentiment towards buying homes from these projects are also being affected, and these sales are also going more preference towards either the secondary market or homes for projects from developers that are SOEs.

Lin: Thank you, Cheng Wee. For Morningstar, I'm Kate Lin.

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Kate Lin

Kate Lin  is a Data Journalist for Morningstar Asia, and is based in Hong Kong

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