Affected by the Sino-US trade war and the outbreak of COVID-19, China’s economy has suffered a severe blow, its economic growth is expected to drop between 3 to 3.5% in the first quarter of this year. In addition to the first two months’ PMI exceeding 35.7, real estate development investment was also below market expectations. According to the National Bureau of Statistics, in the first two months of 2020, real estate investment totalled 1,011.5 billion; a decrease of 16.3%, of which the central region’s investment fell the most significantly, reaching 25.9%. The total sales area was 84.75 million square metres, a year-on-year decrease of 39.9%. The average unit price of residential buildings in the first two months of 2020 was RMB9,611 per square metre, a year-on-year increase of 7.4%; the floor space of commercial buildings was RMB828.3 billion, a decrease of 35.9%.

The US Federal Reserve cut interest rates twice in March, reducing the interest rate by 150 basis points to zero in total, expanding China’s room for further interest rate cuts to stimulate the economy. Although Hainan Province announced a ban on the sale of uncompleted properties in the first quarter to control the order of the property market, the government policies in the first quarter remained relatively stable among first-tier cities.

In terms of property market policies in the Mainland, since the central government has repeatedly stated that buildings are to be used for living instead of speculation, it is expected that the current property market policies (including restrictions on loans and purchases) are unlikely to loosen. Hainan announced to ban the sale of uncompleted flats in early March, suggesting the country’s housing policies could still be strict despite the current severe economic environment. Since the central government’s epidemic prevention work has achieved initial outcomes by the first quarter, the focus of the second quarter will be on stabilising the economy. These economic stimulus programmes can be roughly divided into two categories: one is the implementation of loose monetary policy by the People’s Bank of China; and the other is the increase of the intensity and speed of fiscal measures for infrastructure investment in the Mainland. The People’s Bank’s current monetary policy is nothing more than cutting interest rates and required reserve ratio.

If the interest rate continues to fall, it implies that the interest rate on the country’s mortgages could gradually decrease, which could stimulate financing businesses, including the subsequent real estate transaction volume.

In recent months, the US Federal Reserve has cut interest rates, allowing many countries around the world to implement easing policies, while offering more room for easing policies in China. Additionally, in a policy-easing environment, it is expected that domestic housing will be more prone to debt issuance and refinancing. However, influenced by the current real estate policy,

the fluctuation of house prices is indeed limited. It is worth mentioning that if the central government of China would continue to increase fiscal policies for infrastructure investment, should the economic growth continue to be sluggish in the second quarter, it could help stablise the property market’s expectations. Following the economic stimulus package in the first quarter, it is expected that the Mainland’s economic growth will pick up to 5% in the second quarter, while the growth rate of infrastructure investment for the whole year will be around 10%.

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