China’s top leaders are calling for a halt to the decline of the real estate sector

BEIJING – China wants to halt the real estate crisis, top leaders said in an interview on Thursday reading from a high-level meeting published by state media.

Authorities “must work to halt the decline of the real estate market and achieve a stable recovery,” said the text in Chinese, translated by CNBC. It also called for “responding to the concerns of the masses.”

Chinese President Xi Jinping led Thursday’s meeting of the Politburo, the second-highest circle of power within China’s ruling Communist Party, state media said.

The lecture said leaders called for strengthening support for fiscal and monetary policies, and touched on a range of issues ranging from employment to an aging population. No timetable or scope of measures was specified.

“I view the messages from this meeting as a positive step,” Zhiwei Zhang, president and chief economist at Pinpoint Asset Management, said in an email to CNBC. ‘It takes time to formulate a comprehensive fiscal package to address the economic challenges. [and] The meeting took a step in that direction.”

Shares in mainland China and Hong Kong rose further after the news and closed sharply higher on Thursday. A index of Chinese real estate stocks in Hong Kong rose by almost 12%.

Real estate once accounted for more than a quarter of the Chinese economy. The sector has collapsed since Beijing’s 2020 crackdown on developers’ high debt levels. But the decline has also led to a decline in local government revenues and household wealth.

China’s broader economic growth has slowed, raising concerns about whether the country can meet its full-year GDP target of around 5% without additional stimulus. Just days after the US cut interest rates, the People’s Bank of China announced a slew of planned rate cuts and real estate aid on Tuesday. Stocks rose, but analysts warned the economy still needed fiscal support.

Official data show that the decline in the real estate sector has moderated slightly in recent months. The value of new homes sold fell by 23.6% through August, slightly better than the 24.3% decline since July last year.

Average home prices fell 6.8% on a seasonally adjusted basis in August from the previous month, according to Goldman Sachs. That was a modest improvement from a 7.6% decline in July.

“Bottom-out stabilization in the housing market will be a prerequisite for households to take action and break the wait-and-see cycle,” Yue Su, chief China economist at the Economist Intelligence Unit, said in a note. “This suggests that the policy priority is not to increase house prices to create a wealth effect, but to encourage households to make purchases. This real estate policy is aimed at reducing the negative impact on the economy.”

Thursday’s meeting called for limiting housing supply growth, increasing lending for whitelisted projects and lowering interest rates on existing mortgages. The People’s Bank of China said on Tuesday that the coming cuts should reduce mortgage costs by 150 billion yuan ($21.37 billion) a year.

While Thursday’s meeting did not provide many details, it is significant for a country where policy guidelines are increasingly determined at the top.

The high-level meeting reflects the setting of a “general policy” as previously there was no single meeting to summarize the measures, Zong Liang, chief researcher of the Bank of China, said in Mandarin, translated by CNBC.

He noted that the meeting follows the market’s positive response to the policy announcements earlier this week. Zong expects Beijing to increase support and notes a shift from a focus on stability to taking action.

The meeting showed that China would “work hard to achieve the country’s economic goals for the whole year.”

That’s less aggressive than the July Politburo meeting, when the talk showed China would work to achieve these goals “at all costs,” said Bruce Pang, chief economist and head of research for Greater China at JLL.

That shows policymakers are looking for a middle ground between short-term growth and longer-term efforts to address structural problems, he said.

Goldman Sachs and other companies have lowered their growth forecasts in recent weeks.

The change in tone on economic targets indicates that “the government could tolerate growth below 5%,” the EIU’s Su said. “We estimate that real economic growth will be around 4.7% in 2024, before slowing to 4.5% (a moderate upward revision to our previous forecast).

“The Politburo meetings on economic engagement usually take place in April, July and October,” she said.

“The earlier holding of this meeting, along with the focus on stabilizing growth, reflects policymakers’ concerns about the current economic growth trend.”

Analysts’ initial reactions to Thursday’s meeting reading were varied.

HSBC said: “The tide has turned; be prepared for more proactive initiatives.” Capital Economics, on the other hand, said Beijing’s hint at stimulus did not clarify whether this would include large-scale fiscal support.

Analysts at S&P Global Ratings said in a report earlier this year that China’s fiscal stimulus measures are losing their effectiveness and are more likely to be a strategy to buy time for longer-term goals.

Senior officials told reporters this summer that the economy had to endure some “pain” as it transitioned to higher-quality growth with a larger high-tech industry.

— CNBC’s Sonia Heng contributed to this report.