China’s property market problems are expected to worsen in 2022

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BEIJING – Problems in China’s property market are likely to worsen this year as prices remain flat and sales and investment fall further, while tighter and broader COVID-19 controls still weigh on fragile demand despite more policy simplifications.

The property market, a pillar of the world’s second-largest economy, was weakened last year by a government clampdown on excessive borrowing from developers.

Since the beginning of this year, more than 100 cities have taken steps to increase demand through mortgage reductions, small down-payments and subsidies.

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The outlook for the property market is expected to remain dark in the first half of the year and throughout 2022.

According to a Reuters survey of 13 analysts and economists conducted between May 16 and May 23, average house prices are expected to fall 1.3% year-on-year in the first half. Compared to a 1.0% fall in a Reuters poll in February.

For the full year, home prices may be flat against the previous poll’s forecast of 2.0% growth.

“The current national housing inventory is at an all-time high, and Tier-III and four cities are facing large de-stocking pressures,” said Ma Hong, an analyst at the Zhexin Investment Research Institute.

“The turning point in home prices could be in the third quarter, and home prices in Tier-One and two cities could be first.”

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Analysts are also more pessimistic about housing demand and supply than the previous Reuters survey.

For demand, the first half saw property sales decline by 25.0%, extending from a 14.0% fall in the February vote. Sales are expected to decline 10.0% for the full year.

Investments in real estate firms are expected to decline 5.0% in the first half and 2.5% for the full year. Analysts predict that investment will decline by 2.0% in the first half and increase by 1.5% in 2022.

The depressed outlook for property prices, sales and investments is largely due to the frequent COVID-19 outbreak.

The Chinese capital, Beijing, has extended home-based work guidance for many of its 22 million residents after suspending all dine-in services and indoor gyms, while Shanghai plans to lift a two-month lockdown in the first half of June.

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The epidemic has affected Shanghai’s property market as developers and agents have suspended offline activities and many residents have been quarantined, leading to a big drop in home sales, said Wang Xiaokiang, an analyst at Zhuge House Hunter, a property data provider.

China lowered its benchmark reference rate for mortgages by an unexpectedly wide margin to support its property market, just days after lowering mortgage interest rates for some home buyers on Friday.

Analysts say further policy measures aimed at regulating supply should be introduced to restore market confidence.

Liu Yuan, head of research at Sentinelin, China’s largest property brokerage, said measures such as nationwide measures to ease restrictions on financing for real estate enterprises and the Shantitown redevelopment project could stabilize the property market.

(For other stories from Reuters Quarterly Housing Market Poll 🙂 (Reporting by Liangping Gao and Ryan Wu; Additional reporting by Xuan Wang and Jenny Su; Editing by Sonali Desai)