Amidst a historically strong property market slowdown, China’s property sector is grappling with waning demand, as property sales saw a significant monthly drop from May to June. Previously a driving force for economic growth, the sector’s struggles are prompting action. The Politburo, a top decision-making body within the Communist Party, underscored the need to adapt to changing market dynamics and swiftly optimize property policies. As concerns over demand in lower-tier cities arise, there’s anticipation that more cities may follow Zhengzhou’s lead in easing restrictions. All eyes are on how China navigates these challenges while shaping its property market.
Zhengzhou city in China has implemented initiatives to bolster its property market, responding to cues from policymakers. These measures involve relaxing home resale restrictions, reducing mortgage rates and down payment ratios, cutting housing transaction taxes, and providing home buying subsidies to families with multiple children. Analysts noted that these actions mark the first significant moves made by a major city in response to policy signals.
According to analysts, although it’s too soon to assess the full impact of the support measures on Zhengzhou, a city with a population of over 12.8 million, the actions are seen as a positive signal for the market. Nomura, in a research note expressed optimism that Zhengzhou’s property easing measures would be favourably received by the markets and anticipated that other tier-2 and even tier-1 cities might adopt similar approaches in the future.
However, the brokerage expressed apprehension about the move. Nomura stated that lifting property restrictions in big cities could lead to reduced demand in lower-tier cities, which contribute 70% of the national new home sales volume and significantly drive commodity demand and construction activity. They also worried that easing restrictions on existing home sales without lifting restrictions on home purchases might increase supply and result in a decrease in home prices.
Last week, China's central bank governor allocated additional financial resources toward private enterprises, including the property sector. In recent weeks, the demand for the property sector, which was previously a key driver of economic growth, has remained sluggish. Property sales between May and June witnessed the most substantial monthly decline this year, measured by sales per unit area.
In response to this situation, the Politburo, a top decision-making body of the ruling Communist Party, emphasized the importance of adjusting to significant shifts in market supply and demand. They highlighted the need to promptly optimize property policies to address the current challenges.
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