from ZeroHedge:
More than four years ago, when China first launched its latest “deleveraging” campaign targeted at bursting the country’s housing bubble in a controlled fashion, which coincidentally was the single largest asset for China’s massive middle class, we – and many others – said that this experiment was doomed and that all China is doing is delaying the inevitable bailout of the property sector with another metric asston of new debt. Well, as the news overnight confirmed, we were right… but not before China saw all of its largest domestic real estate developers collapse, push its housing market into a deflationary tailspin from which the country has not yet recovered, and suffered five years where its economy stagnated and pushed social tension to the edge.
TRUTH LIVES on at https://sgtreport.tv/
So what happened?
On Friday, Chinese policymakers unveiled a fresh batch of easing measures for the housing market, including:
Needless to say, local government (which is really just an extension of the central government) purchases of existing housing inventory is for lack of a better word, nationalization, and as Goldman writes in its post-mortem (pdf available to pro subs), if implemented at scale, can help stabilize home sales, prices and completions, but the boost to new starts and land purchase would be limited.
And while lower downpayment ratios and mortgage rates may boost home sales to some degree, the magnitude of downpayment ratio reductions was relatively small this time, and the pace of cuts to effective mortgage rates could be somewhat constrained by bank net interest margins.
In total, Goldman expects more housing easing efforts down the road — especially on the demand-side — and view funding and implementation as key for the effectiveness of any property market rescue plan. Besides the RMB300bn relending quota, the PBOC’s pledged supplementary lending (PSL), local government special bonds (LGSB), policy bank bonds and commercial bank loans could be potential funding sources for housing destocking. Upcoming policy events will be worth monitoring closely, especially on solutions to address funding and implementation bottlenecks.
1. What’s new today? Following the April Politburo meeting, Chinese policymakers have significantly stepped up their easing efforts to help stabilize the property sector, on both funding and policy solutions. There were a batch of fresh housing easing measures unveiled today (17 May):
2. Why now? Despite the previous round of housing easing measures, property headwinds are still strong: new home sales have remained around 30% below year-ago levels in recent months…
… housing inventory has stayed elevated, secondary home prices declined further in April…
… and some private developers (e.g., Vanke, Agile) continue to face challenging funding conditions. Here, Goldman asserts that “recent developments suggest to us that the prolonged property sector weakness has likely breached policymakers’ pain threshold, pushing them to step up housing easing and to shift the strategic focus towards digesting existing housing inventory.”