“The real estate sector does show some signs of stabilising, but has it bottomed out? I don’t think we can make such a conclusion right away,” Lu Ting, chief China economist at Japanese investment bank Nomura, said in Beijing on Saturday.
Lu said that with delayed delivery of roughly 20 million presold homes – mostly in lower-tier cities where many private developers have been ensnared – there was a “negative feedback loop” between a public reluctance to buy new homes and a lack of cash among developers to build homes.
It also led to lower income for local governments, which rely heavily on land sales revenue, which in turn meant pay cuts for public sector workers and further drop in new home purchases, he added.
“Without cleaning up the mess [from undelivered presold homes], the real recovery of the property sector still faces a huge obstacle,” Lu said.
Beijing has implemented a series of stimulus measures to prevent the property market from further falls in the second half of the year, but sales have remained sluggish and prices dropped.
“The rebound of consumption in the travel and catering sectors may slow down notably, because of the fading of a low base,” he said.
Investment in green energy industrial chains such as solar panels and electric vehicles – which were among the few export bright spots this year – might slow due to overcapacity and rising trade barriers in key overseas markets such as Europe, Lu added.
And weakening external demand as well as lasting geopolitical tensions would further weigh on China’s export sector and foreign investment, he said.
Despite the worsening global slowdown, falling yields in developed economies and a weaker dollar could give Beijing more space to ramp up its fiscal spending, with funding either from markets or its own central bank, according to Lu.
“Weak external demand also limits inflation and leaves more room for the [People’s Bank of China’s] money-printing, which might be essential for rescuing many projects left unfinished by developers,” he said.
He added that neither commercial banks nor local governments had the ability to put an end to the property crisis.
To save the economy, “first, the real estate sector is critical. Second delivery of presold homes is critical. Third, it should be financed by the central government.”
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