Goldman Sachs: Property De-stocking Policies Remain Ineffective

In the period spanning the second half of May to mid-June 2024, the property market demand score stood at 40 out of 100, approximately 20% below historical cycle levels. Recent mortgage easing measures have contributed to improved homebuyer affordability, reaching levels comparable to those observed at the end of 2016. As of the end of May, over 70 municipalities had implemented the “trade-in” programme, although transaction volumes in Zhengzhou and Nanjing remained modest. However, the lack of clarity regarding policy progress may be testing investors’ patience. The implementation of the inventory reduction policy appears to primarily benefit state-owned enterprises (SOEs), as developers are obligated to commit to purchasing their inventory from local SOEs or the government when acquiring new land. Sentiment indicators suggest a divergence between different city tiers, with market sentiment in Tier 2 and Tier 3 cities exhibiting a downward trend in June, while Tier 1 cities demonstrated improvement.

Despite an uptick in listing searches and visits to sales centres, these activities have not yet translated into substantial transaction volumes. The Prosperity Index for the secondary market remained flat in May, signalling a low volume of transactions and a subdued house price forecast for June. Developers continue to face acute liquidity challenges, with the funding gap in 2024 projected to range from RMB2.5 trillion to RMB4.3 trillion. Although the situation has seen some improvement due to reduced cash outflows for land acquisitions and construction capital expenditures, the implementation of more targeted inventory reduction measures and increased financial support remain imperative.