- Real estate investments fall over 6% in H1CY’22
- Govt loosens market policies to push growth
- Focus on housing delivery to de-risk sector
Morning Brief: The real estate industry is an important area of steel consumption accounting for over 35% of annual steel demand in China. Since the beginning of 2022, most of the indicators of the steel market have continued to recover, and some of them have grown strongly, but the real estate market indicators have not been ideal, which is the biggest constraint to macroeconomic growth and steel demand.
According to statistics, from January to July this year, the national real estate development investment fell by 6.4% y-o-y, of which residential investment fell by 5.8% while newly started housing area fell by 36.1%. The policy establishment has launched a series of measures to promote the steady and healthy development of the real estate market.
Government’s focus
The Politburo meeting of the Central Committee held sometime back called for intensifying macro control and ensuring stable economic growth. It is important that the real estate remains active and promising. The central government will support local governments to improve real estate policies based on local factors and improved housing needs.
The Politburo meeting of the Central Committee has actually set the tone and will play a key role in the steady growth of real estate investment, which will improve confidence in the real estate market.
Housing policy
For a period of time, relatively strict restrictive policies have been implemented, mainly to restrict the purchase of houses, especially to vigorously suppress the demand for investment houses. Since the second half of 2021, governments at all levels have begun to significantly loosen the restrictions on property purchases and turn to encouraging housing purchases.
So far, all provinces and cities in the country have introduced policies to loosen property market restrictions, including the cancellation of purchase and loan restrictions, subsidies for house purchases and various means to reduce the cost of house purchase. This is a general shift in housing policy from tight to loose.
Rate cuts for home loans
On 22 August, the People’s Bank of China authorised the National Interbank Funding Center to announce that the loan market quoted interest rate (LPR) will be: one-year LPR is 3.65%, down by 5 basis points, and LPR over five years is 4.3%, down 15 basis points. This is the third time the LPR has cut interest rates this year.
Based on this analysis, the one-year and the five-year LPRs have fallen by 15 basis points and 35 basis points respectively since the beginning of this year. The effect of the interest rate cut after the LPR cut will be superimposed. The first home loan interest rate is as low as 4.1%, which is lower than the 4.156% of the mortgage interest rate in 2009 after a 30% discount.
The move significantly reduces the cost of borrowing for buyers. It is estimated that an RMB 1 million mortgage can be reduced by RMB 31,800 in 30 years. The industry expects that the interest rate for the next five years may continue to be lowered, which will lead to further improvement in real estate sales.
Guaranteeing delivery of buildings
Previously, the People’s Bank of China, the Ministry of Finance, and the Ministry of Housing and Urban-Rural Development jointly issued a document requesting active measures to be taken to “guarantee the delivery of buildings” to prevent risk spill over from the real estate companies. Relevant departments will support the construction and delivery of residential projects that have been sold overdue and difficult to deliver through special loans from policy banks.
The management department also requires real estate developers, as the main body responsible for “guaranteeing the handover of the building” and to raise funds from various parties. The local government should also assume the territorial responsibility of “guaranteeing the handover of buildings and stabilising people’s livelihood” and make every effort to help enterprises do a good job in ensuring the handover of buildings. This is expected to promote the formation of the physical workload of related construction projects.
Gradual recovery
In August, the national real estate market has recovered significantly, especially the second-hand housing transactions are strong and the enthusiasm of some large real estate companies to acquire land has increased. It is expected that as the regulations and policies gradually take effect and as real estate prices fall thereby stimulating the rise in housing sales, the market and investments will come out of the trough, which will of course boost steel consumption.
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