1/10
Regulators are reportedly planning a major bailout for the real estate market. I've always thought they could only slow the property decline (temporarily) by combining a comprehensive rescue package with a relaxation of zero-COVID.
bloomberg.com
Regulators are reportedly planning a major bailout for the real estate market. I've always thought they could only slow the property decline (temporarily) by combining a comprehensive rescue package with a relaxation of zero-COVID.
bloomberg.com
2/10
They seem to be trying the former: "Unlike previous piecemeal steps, the latest notice includes 16 measures that range from addressing the liquidity crisis faced by developers to loosening down-payment requirements for homebuyers, the people said."
They seem to be trying the former: "Unlike previous piecemeal steps, the latest notice includes 16 measures that range from addressing the liquidity crisis faced by developers to loosening down-payment requirements for homebuyers, the people said."
3/10
Will these measures work? It's hard to say. China's property sector had been driven by a combination of out-of-control speculation, an insatiable appetite among homebuyers and property developers for debt, and a banking system eager to lend against real estate.
Will these measures work? It's hard to say. China's property sector had been driven by a combination of out-of-control speculation, an insatiable appetite among homebuyers and property developers for debt, and a banking system eager to lend against real estate.
4/10
Perhaps it will be possible to reverse homebuyer sentiment, but after decades in which property prices were seen as a one-way bet, the past year may have severely dented what was once an article of faith. Without that faith, the property sector can only decline further.
Perhaps it will be possible to reverse homebuyer sentiment, but after decades in which property prices were seen as a one-way bet, the past year may have severely dented what was once an article of faith. Without that faith, the property sector can only decline further.
5/10
It is also not clear what it means for these policies to "work". I think the worst thing that could happen to China in the medium and long term would be a reversion to conditions of just a few years ago, even if that is what many local government officials might wish.
It is also not clear what it means for these policies to "work". I think the worst thing that could happen to China in the medium and long term would be a reversion to conditions of just a few years ago, even if that is what many local government officials might wish.
6/10
Residential property in China is trading relative to GDP a more than 2-3 times the level in the rest of the world. Whenever this has happened in other countries, it was never sustainable and was always followed by severe price declines and much slower growth.
Residential property in China is trading relative to GDP a more than 2-3 times the level in the rest of the world. Whenever this has happened in other countries, it was never sustainable and was always followed by severe price declines and much slower growth.
7/10
What is more, according to research by Plenum, the amount of floor space the sector was delivering annually until 2020 was at least 20-30% higher than even the most optimistic demand projections over the rest of this decade.
What is more, according to research by Plenum, the amount of floor space the sector was delivering annually until 2020 was at least 20-30% higher than even the most optimistic demand projections over the rest of this decade.
8/10
There is no question that China needs a substantial contraction in the property sector, which for too many years has comprised an extraordinary 20-30% of economic activity and in which investment is an – also-extraordinary – 12-14 percentage points of GDP.
There is no question that China needs a substantial contraction in the property sector, which for too many years has comprised an extraordinary 20-30% of economic activity and in which investment is an – also-extraordinary – 12-14 percentage points of GDP.
9/10
There is simply no way these levels can be maintained, and to bring them to more "normal levels" requires a substantial downward adjustment that has barely begun. But there is also no way that an adjustment of this size won't be economically very painful.
There is simply no way these levels can be maintained, and to bring them to more "normal levels" requires a substantial downward adjustment that has barely begun. But there is also no way that an adjustment of this size won't be economically very painful.
10/10
While many policymakers still seem to think it possible to resolve China's property-sector excesses at little cost, there is a real risk that if the latest package doesn't work, credibility will be further undermined. Needless to say, that won't help.
While many policymakers still seem to think it possible to resolve China's property-sector excesses at little cost, there is a real risk that if the latest package doesn't work, credibility will be further undermined. Needless to say, that won't help.
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