JPMorgan Econ FI-China Home price recorded sharpest fall in current cycle Va...-107633379

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Asia Pacific Economic Research

16 April 2024

JPMORGAN

www.jpmorganmarkets.com

Emerging Markets Asia, Economic

and Policy Research

Tingting Ge

(852) 2800-0143

tingting.ge@jpmorgan.com

Haibin Zhu

(852) 2800-7039

haibin.zhu@jpmorgan.com

Grace Ng

(852) 2800-7002

grace.h.ng@jpmorgan.com

Ji Yan

(852) 2800-7673

ji.yan@jpmorgan.com

JPMorgan Chase Bank, N.A., Hong Kong Branch

The year-on-year fall in NBS 70-city home prices widened to the sharpest

magnitude in the current housing cycle, despite the marginally narrower

sequential decline in March. New home price declined 2.7%oya (vs -1.9% in

February), along with a 5.9% drop for secondary home price (vs -5.1% in

February). In sequential terms, the NBS 70-city new home price fell 0.3%m/m

nsa, compared to 0.4% in the prior five consecutive months. Compared to the

previous month, new home prices declined in 57 cities in February (vs 59 cities in

February), increased in 11 cities (vs 8 cities in February) and were unchanged in

the remaining 2 cities. Across city tiers, new home prices fell 0.1%m/m in Tier-1

cities (vs -0.3% February), with continued outperformance of Shanghai (+0.5%),

flat in Beijing, and a 0.7% and 0.4% fall in Guangzhou and Shenzhen. New home

prices also dropped 0.3%m/m in Tier-2 cities, and 0.4% in Tier-3 cities. As for the

70-city secondary home price, it dropped 0.7%m/m nsa in Tier-1 cities, and was

down 0.5% in both Tier-2 and 3 cities. Note that official data may have

underestimated the housing price correction, partly due to limited city sample

coverage as lower-tier cities may have experienced sharper housing price

corrections. For reference, during the previous housing downturn cycle over 2014-

2015, NBS 70 major cities’ new home prices corrected 6.6% while secondary home

prices corrected 5.3%. This time around, 70 major cities’ new home prices declined

5.3% by the end of March compared to the peak in August 2021, along with a 10.7%

drop for secondary home prices.

Vanke comes under the spotlight, testing the “resiliency” of SOE/quasi-SOE

developers (and the financial system). There were rising market concerns on

Vanke’s liquidity stress in the past 1-2 months amid multiple news flows, followed

by official clarification for some of them. On April 14, Chairman Yu Liang

confirmed Vanke’s liquidity pressure at an investor conference, saying it is because

the firm wasn’t able to shift the old business models and practices in a timely

manner to adapt to the new phase of real estate sector development. In other words,

Vanke is facing liquidity stress amidst the property sector downturn, a signal that

quasi-SOE or SOE developers are likely becoming less immune to continuous

housing price declines and sluggish home sales. Compared to other defaulted POE

developers, one tricky part around Vanke is that more than 90% of Vanke’s bank

loans are unsecured. This suggests the potential loss for banks could be higher

compared to episodes of other POE developers. Lately, Vanke announced an

aggressive deleverage plan to cut debt by 100 billion yuan, nearly one-third of its

interest-bearing debt at 320 billion yuan by end of 2023. The disposal plan of

assets/stake by 30bn yuan is insufficient and home sales revenue likely will

continue to contract. Hence, Vanke will, on one hand, need continuing refinancing

support from banks, and on the other hand, large-scale asset disposals with the help

from Shenzhen Metro or other SOEs. Note that although Vanke is not a pure SOE,

Shenzhen Metro is its largest shareholder. On November 6, Shenzhen SASAC and

Shenzhen Metro pledged their support for Vanke via potential asset acquisition and

bond purchase after a slump in Vanke’s bond prices. Vanke also the announced

suspension of land purchase, no dividend payout and management’s pay cuts, a

precautionary move amid liquidity pressure. Our property and credit analysts think

See page 4 for analyst certification and important disclosures.

China: Home price recorded

sharpest fall in current cycle

Vanke in focus, testing (quasi-) SOEs’ resiliency

Tingting Ge (852) 2800-0143

tingting.ge@jpmorgan.com

JPMorgan Chase Bank, N.A., Hong Kong Branch

Haibin Zhu (852) 2800-7039

haibin.zhu@jpmorgan.com

Grace Ng (852) 2800-7002

grace.h.ng@jpmorgan.com

Ji Yan (852) 2800-7673

ji.yan@jpmorgan.com

Asia Pacific Economic Research

China: Home price recorded

sharpest fall in current cycle

16 April 2024

JPMORGAN

the near-term bond default risk is manageable as pubic bond maturity is around 13bn yuan

this year, but 2025 likely will be more challenging with a peak maturity of 36bn yuan.

On a separate note, Ping An trust confirmed repayment delays on an investment product

linked to property project on April 10. It also suggests the prolonged housing market

correction continues to generate spillovers to the rest of the economy, including other

developers, banks and trusts etc. The development around Vanke is under the spotlight, as the

market tries to gauge whether (quasi-) SOE developers will be no longer immune to the

housing sector correction, how banks will deal with their unsecured lending to Vanke and

potential spillover risks to the financial sector, and whether the government will respond with

more forceful support to avoid liquidity stress intensification as a Vanke default would exert

further drag on investor and homebuyers’ confidence.

Home purchase sentiment remained weak amid another baby-step demand side easing

in Beijing. According to a CREIS survey, households’ willingness to purchase a house

remains low. The top three factors holding people back include: 1) mortgage repayment

pressure, 2) future income uncertainty, and 3) concerns of further housing price declines.

Some people also have continuing concerns of home delivery, expectations of further policy

easing and downpayment burden, etc. In late March, Beijing rolled out another demand-side

easing by lifting the three-year limit for new divorcees to buy a home if the number of

properties owned by the original family before divorce does not meet the HPR

requirements. The policy impact seems to be relatively mild so far. As for high-frequency

tracking, 8 major cities’ secondary home sales were relatively solid, but 30 major cities’ new

home transactions remained sluggish, likely to fall another 49%oya if the month-to-date daily

average pace continues for the rest of the month. The government work report reiterated to

optimize housing regulation with “one-city, one-policy”, and we think local-level instead of

nationwide housing policy adjustment may still be the near-term focus. With most

administrative restrictions largely removed in lower-tier cities, additional easing will mostly

come from top-tier cities.

Real estate FAI contraction remained elevated, raising concerns whether the offset

from pubic housing will play out soon. In March, real estate FAI remained sluggish, falling

10.0%oya (vs -9% in Jan-Feb). Continuing housing activity correction is not a surprise to us

as we do expect the housing market will be searching for the bottom for the rest of the year.

However, our baseline forecast has penciled in a 1 trillion yuan stimulus package to support

three major projects. Part of that may go to support urban village renovation related

construction and some might be utilized to purchase undeveloped land and unfinished

projects with a low pre-sale rate from existing developers and transform them into public

housing. Hence, we expect an offset from public housing to mitigate the contraction of real

estate FAI to 2-4% this year. Note that after the 350bn yuan PSL net injection in December,

and another 150bn yuan injection in January, PSL operation became muted, with no change

in February, and 32bn yuan net withdrawal in March. Disclosure from policy banks on

relevant fund utilization progress is also limited. This raises the concern whether PSL funding

support will continue and whether it will translate into material investment and construction

activities of public housing and urban village renovation projects. If progress is delayed, it

points to modest downside to our full-year real estate FAI forecast, and hence a larger-than-

expected drag on macro growth.

Tingting Ge (852) 2800-0143

tingting.ge@jpmorgan.com

JPMorgan Chase Bank, N.A., Hong Kong Branch

Haibin Zhu (852) 2800-7039

haibin.zhu@jpmorgan.com

Grace Ng (852) 2800-7002

grace.h.ng@jpmorgan.com

Ji Yan (852) 2800-7673

ji.yan@jpmorgan.com

Asia Pacific Economic Research

16 April 2024

JPMORGAN

100

110

120

130

140

150

160

11 12 13 14 15 16 17 18 19 20 21 22 23 24

New home

Secondary home (RHS)

China 70-city housing prices

Source: NBS, J.P. Morgan

2010 Dec=100, both scales

100-10

03 05 07 09 11 13 15 17 19 21 23

Index, in reverse order

Housing policy and housing market activity

Index

Housing market

activity index

Housing policy index

Source: NBS; J.P. Morgan; Note: Preliminary estimates for Mar 2024 housing market activity

index with tentative assumptions for land sales growth.

-0.6

-0.3

0.0

0.3

0.6

0.9

1.2

1.5

Jan 18 Jan 19 Jan 20 Jan 21 Jan 22 Jan 23 Jan 24

China: 70-city property price Increased Unchanged

Declined Growth (rhs)

Source: NBS, J.P. Morgan

No. of cities %m/m

0.5

1.0

1.5

2.0

10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

12m rolling sum, sqm bn

China housing activity indicators

Source: NBS, J.P. Morgan

New home started

New home completed

New home sold

010 20 30 40 50

Mortgage repayment burdern

Income uncertainty

Home price decline risk

Unfinished projects

More policy easing

Wait-and-see

Downpayment pressure

No home purchase demand

Mar Feb

Factors holding people back from home purchase

% of survey respondents

Source: CREIS, J.P. Morgan

-200

-100

100

200

300

400

15 16 17 18 19 20 21 22 23 24

Billion yuan

PSL monthly increase

Source: PBOC, J.P. Morgan

150

300

450

600

750

900

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

2019 2020-21avg 2022

2023 2024

Thousand sqm, 7dma

Housing transactions by sqm in 30 major cities

Source: Wind, J.P. Morgan

500

1000

1500

2000

2500

3000

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

2019 2020 2021

2022 2023 2024

Source: Wind, J.P. Morgan

Secondary housing transactions in 8 major cities

Unit, 7dma

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