Policy toward China’s property sector has turned more supportive, but sales, construction activity, and financing for developers continue contracting. Many private developers are now defaulting on offshore bonds, with very few able to refinance at current yields. The most important variable to watch in the coming 2-3 months will be national property sales. Unless sales improve sharply, housing construction is almost certain to depress growth this year, given the lag between developers’ revenue collection and new project starts. If the property sector remains a meaningful drag on the economy, China’s full-year target of “around 5.5%” GDP growth will remain out of reach.
We expect some rise in sales from current levels, but the size of that rebound will influence developers’ confidence in maintaining construction and land purchases. Absent high-level policy signals from Beijing, including a change to the statement that “houses are for living, not for speculation,” most investors and speculators are likely to stay on the sidelines.
