China’s economic slowdown casts a shadow on property easing measures, causing hesitancy among buyers

Real estate agents in Shenzhen, China have been aggressively trying to persuade potential buyers to invest in apartments, but many individuals, like 28-year-old Daisy Wu, are hesitant due to concerns about the weakening economy. The Beijing government recently introduced measures to stimulate the economy and address the challenges faced by the debt-ridden property sector, but analysts doubt whether these measures will be sufficient to stabilize the market. Despite the implementation of lower mortgage rates for first-time homebuyers, the general sentiment among Chinese citizens remains weak, with factors such as job layoffs, company closures, and a demographic decline contributing to this skepticism.

Wu, who works for a pharmaceutical company, expressed her lack of confidence in the mortgage rule adjustments, stating that the current economic climate and the uncertainties surrounding her job security make her and her boyfriend afraid to make a real estate purchase. This lack of confidence is mirrored among Chinese households, as they do not appear to be reassured or motivated by the reduction in mortgage rates. In fact, Alicia Garcia Herrero, chief economist for Asia Pacific at Natixis, stated that the persisting concerns and pressures in the property market go beyond the cost of borrowing.

The property market’s decline is driven by more fundamental issues, including broader economic debt concerns, salary reductions for white-collar workers, and a decrease in the working-age population. In August, China’s new home prices fell for the fourth consecutive month, according to a private survey. Country Garden, a prominent developer, is currently struggling to avoid default, heightening fears of contagion among other property firms. This uncertain environment does not instill confidence in potential buyers.

Moody’s predicts a long recovery process for the property sector due to concerns about developers’ ability to complete projects, a slowing economy, and high unemployment rates. UBS Investment Bank Research’s head of China and Hong Kong property, John Lam, anticipates further easing measures to be announced soon, but still expects property transactions to decrease by approximately 15% in the second half of the year and another 10% in 2024. Fitch Ratings also emphasized the impact that Country Garden’s credit event could have on homebuyer sentiment, particularly in smaller cities.

In Shenzhen and Guangzhou, homeowners who have fully repaid their mortgages or sold their previous homes are now eligible for smaller down payments and lower interest rates when purchasing a new property. However, these policies are not appealing to homeowners like Tina Zhuo, who are not interested in selling their homes in the current “buyers’ market.” Similarly, individuals who want to sell their apartments but are unable to find buyers, such as Chen Yibo, a state-owned company employee in Nanning, are hindered from making new purchases. Yibo emphasized that lower house prices and subsidies are necessary for him to afford a new property.

Wu was recently offered an apartment selling for 1 million yuan ($137,697) less than the average price in the district, with the possibility of an additional 200,000 yuan reduction. However, she and her boyfriend are still reluctant to proceed with the purchase due to their concerns.

Overall, despite the attempts to stimulate the market, the Chinese property sector continues to face challenges due to a range of factors, and the lowered mortgage rates alone are unlikely to alleviate the overall sentiment and uncertainties among potential buyers.