China's property market has seen a strong recovery after a tough year in 2022, as the economy logged palpable expansion at the beginning of 2023 and an array of policies to shore up the sector have taken effect.

In the Jan.-Feb. period, encouraging signals indicated rising confidence on both ends of supply and demand of the market, a "pillar" of China's economy, with its added value accounting for 6.1 percent of the country's gross domestic product last year.

To reinforce the trend of stable growth in the sector, China is setting out to optimize structure on the supply side to defuse risks and address the pressing needs of key groups on the side of demand.

Confidence for steady growth 

In February, 55 out of 70 large and medium-sized cities saw month-on-month increases in new home prices, up from 36 in January, according to the National Bureau of Statistics (NBS). Meanwhile, 40 cities witnessed higher resale home prices, up from 13 in the previous month.

Warming signs were also seen on the second-hand market as prices went up 0.7 percent and 0.1 percent month on month in first and second-tier cities, respectively, while such prices remained flat in third-tier cities to end a losing streak.

The effect of government policies to stabilize the property market gradually appeared, and the housing demand was further unleashed, said NBS Senior Statistician Sheng Guoqing.

Compared with 2022, a decline in investment and sales in the real estate sector largely narrowed during the first two months of this year. Specifically, the drop in property development investment narrowed by 4.3 percentage points, that for real estate developers' funds in place shrank by 10.7 percentage points, and the decrease in commercial housing sales in terms of floor area narrowed by 20.7 percentage points, NBS data showed.

Ni Hong, minister of housing and urban-rural development, told media during the country's "two sessions" earlier this month that he "has full confidence" in the steady recovery of China's property market. China's optimized anti-epidemic response has benefited both the supply and demand side by promoting work resumption of real estate projects and stimulating demand, he said.

The country's commercial housing sales reversed the streak of decline for 13 months in January and February this year.

Work to ensure timely delivery of pre-sale housing is under solid advancement, effectively protecting the lawful rights and interests of home buyers and improving reasonable financing for property developers, he said, noting that the confidence of market entities is recovering.

Ni also underlined the impact of the country's policies to ensure people's well-being by supporting the purchase of first and second homes while curbing housing speculation.

"We expect the recovery of the property market to adhere to the principle that housing is for living in, not for speculation, satisfy people's rigid housing demand and demand for housing improvement, avoid sharp ups and downs in the market, and promote high-quality development of the sector," he added.

Risk prevention on supply-side

In this year's government work report, China pledged to ensure effective risk prevention and mitigation in high-quality, leading real estate enterprises, help them improve debt-to-asset ratios, and prevent unregulated expansion in the real estate market to promote stable growth.

To fend off systemic risk triggered by a mix of real estate risks and risks in the financial sector and local government debts, Ni said accurate measures will be taken to offer equal support to quality state-owned and private property developers to improve their debt and asset situations and meet their reasonable financing needs.

At the same time, measures will support property enterprises with risks to survive, with strict crackdowns on violations of people's interests under laws and regulations.

Work will also be done to vigorously rectify the order of the real estate market and create an honest and trustworthy market environment, Ni said.

It offers support from the supply side and helps ease the liquidity strain of the sector by effectively preventing and resolving the risks of high-quality, leading housing firms and improving their balance sheets, according to China Galaxy Securities Co., Ltd.

Everbright Securities Company Limited predicted that based on the strict control of debt scale, the industrial pattern of commercial housing development will be reshaped by meeting reasonable financing demand of the market and prudently dealing with the risks of some leading firms with radical development plans, which will promote the healthy and sustainable growth of the property sector.

Focus on pressing demand, key groups

Highlighting the work of ensuring people's wellbeing as one of the key objectives of the country, this year's government work report has proposed to "improve the housing support system, support people in buying their first homes or improving their housing situation, and help resolve the housing problems of new urban residents and young people."

Demand for first homes and housing improvement is projected to remain high in the coming decade. From 2021 to 2035, first homes with a total floor area of about 3.9 billion square meters will be required, accounting for 18 percent of the total demand for housing, while the need for housing improvement is expected to be around 12 billion square meters, taking up 54 percent of the total demand, according to a report released by the Beike Research Institute.

The country will continue to implement city-specific and targeted policies to vigorously meet the rigid demand for home-owning and housing improvement to increase confidence and promote steady recovery and healthy development of the real estate market, Ni said.

Stressing the importance of the continuous recovery of new housing sales, Dongxing Securities Corporation Limited said policies at both ends of supply and demand are forming a synergy to stabilize the property sector, and market sales are bottoming out.

To solve the difficulties for new city residents and the youth, Ni said measures will be taken to increase the supply of affordable rental housing and the construction of long-term rental housing.

While supporting housing leasing and increasing housing supply, different cities will implement policies according to their specific market and population situations, and formulate standards such as mortgage and purchase restrictions in a differentiated manner to stimulate potential purchasing power, according to Haitong Securities Company Limited. 

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