UBS analysts have recently expressed optimism that China's beleaguered real estate market is nearing stabilization. The sector began its downturn in late 2020 when Beijing initiated a crackdown on developers' heavy reliance on debt to fuel growth. In recent weeks, existing home sales in five major Chinese cities have risen by over 30% compared to the same period last year. This development is seen as a potential turning point for China's property market, which is a significant component of household wealth and previously contributed to more than a quarter of the nation's economy.
The recovery of China's property sector hinges largely on consumer confidence. As Sky Kwah, head of investment advisory at Raffles Family Office, emphasized, "The key at this point in time is execution. The sector recovery relies on consumer confidence." Rebuilding this confidence is crucial, as it is not easily restored overnight.
In September, Chinese policymakers called for a halt in the decline of the property sector. Despite these efforts, real estate investment fell by nearly 10% in the first two months of the year. However, some experts believe there are signs that the market may be bottoming out. HSBC's Head of Asia Real Estate Michelle Kwok identified ten indicators suggesting stabilization, while Macquarie's Chief China Economist Larry Hu highlighted three positive signals that could help support home prices this year.
The recent announcement of a joint venture between Invesco and Ziroom is another development that could bolster the sector. The newly formed Izara Holdings plans to invest 1.2 billion yuan (approximately $160 million) in a 1,500-room rental housing project near one of the sites for Beijing's Winter Olympics. The project aims for a targeted opening in 2027, reflecting long-term confidence in the market's recovery.
Despite these positive developments, challenges remain. S&P Global Ratings has placed Vanke on credit watch and downgraded its rating on Longfor, indicating ongoing financial vulnerabilities within the sector. Nomura's Chief China Economist Ting Lu noted, "It's long been our view that without a real stabilization of the property sector there will be no real recovery of the Chinese economy."
The broader economic implications are significant, given that the property market constitutes a major portion of household wealth in China. The downturn has had ripple effects across various sectors, underscoring the importance of effective policy measures and support for sustained recovery.
John Lam, head of Asia-Pacific property and Greater China property research at UBS Investment Bank, remarked on the current climate: "After four or five years of a downward cycle, we have begun to see some relatively positive signals." However, he cautioned that these signals might not be uniform across the nation, stating, "Of course these signals aren't nationwide, and may be local."