China announced more measures to support the property sector at a national government meeting on May 17. The stimulus measures come at a time when China’s property sector continues to weaken with price declines and lower transaction volumes.
The focus of the measures is to support housing demand by lowering mortgage rates and getting local government to buy unsold property inventories. Equity market sentiment improved significantly after the announcement of these measures.
However, we do not expect any quick turnaround of the downward price trends in property in most Chinese cities. The current macroeconomic recovery is still quite gradual, the labour market remains challenging and job seeking is not easy – especially for younger people. Therefore, with lower income expectations, the appetite to buy properties among Chinese households could stay low in the near term. Having said that, with the likely improving growth recovery in China in the second half of this year, we believe consumer sentiment may improve together with an upturn in the labour market. On Chinese equites, we think the ongoing re-evaluation of China by investors supports our expectations of a broad and sustained recovery in Chinese equities in H2.
Key takeaways:
- In response to the deterioration of China’s property sector over recent months the regulators announced significant support measures last week.
- These measures include providing bank lending facilities for local governments to buy unsold inventories and lowering the mortgage rates for households.
- Equity market sentiment was bolstered by the announced measures, but the actual implementation of the latter remains key.
