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China's real estate support measures work in big cities, but most small places still ineffective.

TraderKnows
TraderKnows
06-18

In recent years, the Chinese real estate market has plummeted. Although related support measures have been introduced, they are only effective in a few major cities.

China's latest real estate support measures have boosted transactions in large cities, but activities in smaller towns remain sluggish, indicating that most of China's real estate market will face more difficulties.

On May 17, China lowered the minimum mortgage rate and down payment ratio and instructed local governments to purchase unsold apartments to convert them into social housing. This triggered multiple announcements by cities to relax policies based on the new guidelines.

Limited transaction data and interviews with 10 real estate agents nationwide show that these measures have had uneven effects, stimulating demand in major cities like Beijing and Shanghai but failing to gain traction in smaller towns.

Along with weak housing price data released on Monday, this has raised concerns that the downward trend may continue, especially in smaller towns where surplus supply far exceeds that of large cities, placing greater pressure on policymakers to provide more support.

The troubled real estate industry, which contributed nearly a quarter of GDP before the 2021 crisis, remains a significant drag on the $18 trillion economy.

"Policies are more effective for large cities because supply and demand are more balanced," said Zhang Zhiwei, chief economist at Tianfeng Asset Management Company.

"Many smaller cities have long-term structural oversupply issues that are harder to resolve. It will take more time."

Analysts say Beijing needs to provide more funding to local governments in smaller cities to reduce inventory and stabilize the market. However, most expect gradual support rather than large-scale measures, as authorities remain cautious about bailing out reckless developers.

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