Asia in Focus_ China’s Long and Winding Road to Property Sector Stabilization (Wang_Song)

Summary of the Conference Call on China's Property Sector Industry Overview - The report focuses on the Chinese property sector and its recent developments following a policy pivot in September 2024 aimed at stabilization [3][4]. Key Points and Arguments 1. Recent Improvements: Since the policy shift in September 2024, the property sector has shown signs of recovery, particularly in home sales in large cities, with secondary home prices stabilizing in some areas [3][4][6]. 2. Policy Easing Effectiveness: The current policy easing is deemed more effective than previous efforts, attributed to significant price corrections, supportive monetary and fiscal policies, and the release of pent-up demand from consumers who had previously delayed purchases [3][17]. 3. Structural Divergences: There are ongoing structural divergences within the property sector, such as: - Home sales outperforming construction activities - Large cities outperforming smaller cities - Secondary market transactions outperforming primary market sales - Sales of completed new homes outperforming presales [3][18]. 4. Core to Stabilization: Stabilizing home prices is crucial for policymakers to address the property downturn. A significant reduction in housing inventory, higher rental yields, and improved financing conditions are necessary for sustainable stabilization [3][34]. 5. Housing Inventory and Rental Yields: Despite recent improvements in home sales, housing inventory remains high, particularly in lower-tier cities. The report estimates that reducing inventory to 2018 levels would require approximately RMB6 trillion [35]. Rental yields in large cities have gradually improved, approaching the yields of 30-year Chinese government bonds [36]. 6. Future Expectations: The property sector is expected to continue weighing on China's GDP growth, with an estimated drag of 1.9 percentage points in 2025, slightly less than the 2.0 percentage points in 2024. A narrowing of this drag is anticipated starting in 2026 [38][41]. Additional Important Insights - Market Dynamics: The report highlights that secondary home transactions accounted for 44% of nationwide home sales in 2024, a significant increase from 19% in 2021, indicating a shift in buyer preferences due to concerns over developers' ability to deliver new homes [27]. - Construction Weakness: Despite improvements in home sales, construction-related metrics such as new homes under construction and property investment have continued to weaken [6][21]. - Policy Measures: The report outlines various policy measures implemented since 2022, including reductions in downpayment ratios and mortgage rates, aimed at stimulating housing transactions [5][17]. This summary encapsulates the critical insights and data from the conference call regarding the current state and future outlook of the Chinese property sector.