What’s the Outlook for China’s Housing Market? By Wang Tao

17 Oct 2023

By Wang Tao

China’s property activities weakened notably in the second quarter and early third quarter after a short-lived rebound in the first three months of 2023, weighing on the recovery of the economy.

The government has been easing property policies since November 2022, and the Politburo set a more supportive tone in its July meeting. But how are households’ latest homebuying intentions and confidence? Are they still concerned about stalled projects and willing to repay mortgages early? What are the top factors affecting market sentiment?

The latest UBS Evidence Lab China Housing Survey of 2,500 respondents offers some on-the-ground evidence for these questions.

Sluggish sentiment

Our survey — conducted between Aug. 7 and Aug. 30 before the recent acceleration of property policy easing — showed buying intention and sentiment weakened in August. The share of respondents planning to buy a house in the next two years edged down further to 18% from 23% in March and 30% in August 2022. This is the second-lowest reading since the survey started in 2015, above only the September 2021 reading of 11%.

The share of respondents having no plan to buy a house picked up to 46%, on par with the record high reading in April 2020. Meanwhile, only 18% of respondents felt more confident buying a property at the time of the survey than six months prior, the lowest reading since late 2015.

The fragile market prospect was also reflected in price expectations, with 29% of all respondents expecting property prices to fall in the next 12 months, surpassing the 25% expecting an increase.

The weaker buying intention, softer confidence and cooler price expectations point to worsening sentiment in the housing market.

But the survey also shows that more people were noticing policy easing. More respondents were aware of recent property policy easing in August, while more potential homebuyers reported property policy easing in the cities where they planned to buy.

However, easing measures were quite gradual and piecemeal until the end of August, and had failed to revive market sentiment and homebuying intention at the time of the latest survey. Residential property sales declined by 25% from March to August in seasonally adjusted volume terms. The number of cities with a sequential decline in housing prices jumped to 52 in August from five in March out of 70 cities.


Market sentiment may have improved a bit in September after our survey. China has been accelerating property policy easing since the end of August, including lowering the minimum down payment requirement and minimum mortgage rates for second-home buyers across the country, removing buying restrictions in over 10 second-tier cities, and relaxing mortgage rules in many large cities including first-tier cities. Recently, Guangzhou, in South China’s Guangdong province, eased restrictions in selected districts and relaxed home purchase qualifications for residents without a local household registration, known as a “hukou.”

We think these easing measures may help underpin market sentiment, especially in higher-tier cities. Property sales in major cities already improved in September.

Activity in the property market may stabilize gradually in the next few months, and we expect more easing measures to come. More second-tier cities will likely remove or ease home purchase restrictions, and lower down payment requirements and mortgage rates, while some first-tier cities may also ease property policy restrictions marginally, following Guangzhou’s lead. But the government needs to provide more credit support to property developers and stalled projects.

Overall, we expect property sales to decline by 10% in 2023 and by between 5% and 10% next year, new property starts by floor space to contract by 25% and 10%, and real estate investment to fall by 10% and 5%.

More details in the survey

Thanks to policy easing in the past several quarters, 86% of respondents said it was easier to get a mortgage — compared with 85% in March and 79% in August last year — the highest reading since the survey started. The average mortgage approval time also narrowed to 3.4 weeks from 3.5 weeks in March and 3.7 weeks last August.

With recent lowering of down payment requirements and mortgage rates, households’ home affordability should continue to improve.

Early mortgage repayment continued. The survey found that 36% of respondents planned to repay their mortgages early, higher than the 27% in March and similar to a year earlier.

As about half of respondents reported that they may choose not to repay mortgages early if mortgage rates were greatly reduced, we expect the pressure of early mortgage repayment to ease in the coming quarters thanks to the ongoing cut of existing mortgage rates.

Meanwhile, there are lingering concerns over stalled projects. A year into the government’s efforts to tackle risks around these projects, the delivery rate of the first batch of projects with special loan support had just passed 60% as of August. Our survey results suggest consumers remained concerned about stalled projects, with 61% of respondents preferring to buy a completed house rather than one under construction. This response was largely on par with the March survey result but much higher than the 48% from a year earlier.

Furthermore, more respondents said they would consider suspending mortgage repayments if the construction of purchased properties is stalled. We think more policy and credit efforts are needed to ensure smooth delivery of stalled projects and boost market sentiment.

To boost confidence in the market, income growth and policy easing are the most important factors, according to the survey, which points to a continued but halfway income growth recovery. However, urban households continued to accumulate excess savings throughout the first half of this year, a lingering headwind on consumption recovery.

Read also the original story.

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