The View | China’s housing woes demand action, even if investors look away

As recently as last month, S&P Global Ratings struck a cautiously optimistic tone on the outlook for China’s housing market. In a report on May 11, S&P said the sector “is finally approaching stabilisation”, pointing to shallower year-on-year declines in prices of new and second-hand homes in Tier 1 cities. In fact, on a monthly basis, prices began to grow in the final months of last year in response to Beijing’s more forceful stimulus measures.

However, a cursory glance at the latest data on the residential property market shows the stabilisation of the sector remains elusive. Last month, new and second-hand house prices across 70 cities contracted at the fastest rate in monthly terms in seven and eight months, respectively.

Real estate investment, moreover, plunged 12 per cent on an annualised basis while sales of new homes fell 3.3 per cent, sharper falls than in April. Among Tier 1 cities, Shanghai was the only city where prices grew at a faster clip on a monthly basis.

The fillip provided by last year’s monetary and fiscal stimulus package is fading while little headway has been made in housing destocking. Nomura believes China’s property market is “facing the equivalent of a ‘bank run’ as many troubled developers have insufficient funding to deliver the pre-sold homes on time”.

Yet China’s ailing housing market is the crisis investors forgot. Only 1 per cent of investors surveyed while attending a JPMorgan conference on Asian credit markets earlier this month believed China’s economy posed the biggest threat to Asian debt markets this year. Nearly 60 per cent cited geopolitics and higher trade tariffs as the most significant risks.

Several factors are at work. First, China’s housing crisis never caused a full-blown recession, mainly because of the strong performance of exports in recent years and the most accommodative financial conditions since 2010. Wall Street always viewed the crisis as an idiosyncratic event with little or no impact on global markets.