Property market in China was hit hard in the past few months, amid a continued slowdown in credit in the country. To stablise the property market, The People’s Bank of China (PBoC) held a forum with the parties like China Banking Regulatory Commission, and the seventeen Chinese banks, as well as housing finance services institutions in the mid of May. The Deputy Governor of PBoC Mr Liu Shiyu even had verbal intervention to tap for property market, but without mentioning loans for developers’ property development. Meanwhile, The PBoC reiterates to have policy support for affordable housings, small ordinary housings construction, first-time self-occupied home buyers.
Mainland property market started to get worse since late last year, led by a plunge in home sales. Total area sold dropped 10% Y-o-Y to 1.6 million square meters in Jan-Apr 2014. Subsequent price drop of 10% M-o-M at RMB11,755 per square meter was seen in March. Downside pressure in property price of Tier-1 cities have become obvious, following the price slashes in Tier-2 and Tier-3 cities property sales.
ICBC led a high-profile response upon The PBoC’s latest verbal intervention. Nonetheless, market still has great concern over property mortgage risk which would trigger loan defaults and foreclosures, should the property prices dive. In fact, banks are getting more difficult to generate profits from their mortgage business, given the rising funding costs. Contraction in property mortgage lending is easily seen, although many banks have indicated that they will support the property mortgage business. As such, we can regard the verbal intervention as a property market booster instead. However, multi-policy coordination like a certain degree of easing in home purchase policy, could help avoid a collapse in Mainland property market in the near-term.