China’s COVID restrictions undermine hopes for property revival

Li Huixiang, a real estate broker in the central Chinese city of Zhengzhou, had been looking forward to a prosperous career. In an effort to boost the city’s struggling real estate sector and local economy along with it, municipal officials have unveiled a raft of incentives, including lower mortgage rates and cash support for new homebuyers.

But Lee, usually a star agent at one of Zhengzhou’s largest housing developments, has sold just five apartments in Sunak since the measures were announced – a fraction of his normal turnover.

“The stimulus measures are not enough to offset the negative factors that are showing few signs of abating,” Lee said, citing factors including Covid-19-related travel restrictions and low family income.

Compared to the same period last year, new home sales in Zhengzhou fell more than 30 percent in the six weeks from March 1 to mid-April, reflecting a national trend.

The city, the capital of Henan Province located just 2.5 hours south of Beijing by high-speed rail, requires all arrivals to self-quarantine for three days. Lee and other brokers said the influx of property buyers from other cities or counties, who accounted for more than half of their sales, has halted.

“There is a conflict between increasing housing sales and following the rules to prevent Covid,” Lee told me.

There has also been unrest within Zhengzhou, a city of 12.6 million people that recently closed a large area where its airport and large factories that supply Apple are located.

The authorities also contacted people whose mobile phone records indicated they had visited the area before it closed, and asked them to quarantine for seven days.

The Chinese president’s administration has made it clear that while people in Shanghai and other cities affected by the lockdown are suffering, containing Covid will remain its top priority. The Shanghai lockdown was initially supposed to be partial and last no longer than 10 days, but it has been extended indefinitely.

The National Bureau of Statistics said Monday that home construction fell 20 percent in the first quarter, compared with the same period last year, although at least 60 other cities have implemented property support measures similar to those in Zhengzhou.

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While NBS estimated that economic output in the first quarter expanded 4.8 percent stronger than expected, March data signaled the beginning of a significant slowdown as Shanghai and dozens of other cities began imposing lockdowns to contain virus outbreaks and bolster President Xi Jinping. The controversial “zero covid” policy.

Stricter lockdowns in the Yangtze River Delta have centered around Shanghai, ramping up logistics in one of the country’s most important manufacturing and exporting regions, but Zhengzhou has also been affected.

China’s central bank has had three opportunities to cut various interest rates since April 15, but it chose to leave the three rates unchanged. The only sign of policy easing this month was a smaller-than-expected 25 basis point cut in the bank reserve ratio.

Even before the Covid lockdowns began spreading in March, a government policy adviser in Beijing, who asked not to be named, said that “the top leadership had underestimated the impact of the real estate crash on the broader economy.”

“The situation may get worse before it gets better,” he added.

Zhengzhou’s real estate stimulus package, one of the most decisive in the country, was deemed necessary to save the sector from disaster in 2021. According to official data, sales of new homes in the city fell by a third last year while land sales, a major source. of fiscal revenue, by a quarter.

In addition to Xi’s crackdown on highly leveraged developers, Zhengzhou’s economy was also hit last year by two coronavirus shutdowns and a severe flood that bankrupted small businesses and contributed to rising unemployment.

“[Local governments] “They have been struggling with increasing spending requirements, particularly in the social sphere, but the revenue base has been consistent,” said Bert Hoffman, head of the East Asia Institute at the National University of Singapore. “They’re really stressed.”

On March 1, Zhengzhou began rolling back measures that had been introduced to curb speculative buying – in line with Xi’s motto that “homes are to live in, not to speculate”. Under the looser rules, the down payment percentage for second home buyers has been lowered to 30 percent from 60 percent and they could be eligible for mortgages at 4.9 percent, down from 6 percent previously.

City officials have also cut the time buyers have to wait before they can sell their homes to one year from three, and have introduced subsidies for those with college degrees.

“We are doing everything, including allowing a moderate level of speculation, to bring the market back to life,” said the Zhengzhou housing official.

Contrary to Xi’s goal of promoting “shared prosperity” and reducing China’s stark social and economic divide, the measures boosted sales of luxury properties but did little for middle-class buyers.

“There is no shortage of wealthy buyers who understand the value of real estate investment,” said Lucy Wang, a sales agent at a high-end project in the northern suburbs of Zhengzhou. Wang sold 15 apartments, costing more than 8 million renminbi ($1.25 million), after the measures were announced.

However, mass market developers are still struggling to attract buyers across the country, even with price cuts or incentives such as free parking spaces. Nationally, household savings increased 17 percent during the first three months of this year, while their new debt, made up primarily of mortgages, decreased 46 percent.

Marketing staff at seven low- and mid-priced development projects in Zhengzhou told the Financial Times that they were not meeting their monthly sales targets. The city is littered with dozens of stalled projects abandoned by bankrupt developers.

“People are afraid to enter the market when they are surrounded by unfinished buildings built by struggling developers,” said an official at the Zhengzhou branch of China Merchants Property, a Shenzhen-based group.

One potential buyer with second doubts is Zhang Jian, a Zhengzhou engineer who last week withdrew from a 1.2 million RMB purchase of a property built by Country Garden, China’s largest real estate group by sales. “I will wait for the market to weaken further,” he said.

Additional reporting by Andy Lin in Hong Kong