After the International Monetary Fund upgraded China’s growth forecasts in 2024 this week, wealth managers commented about the outlook and the potential impact of China’s latest housing market stimulus measures.

The International Monetary Fund (IMF) has just upgraded China’s growth forecasts to 5 per cent from 4.6 per cent in 2024, after a strong first quarter, and to 4.5 per cent in 2025. It was also down to additional policy measures.

China announced a number of initiatives to support the housing market in May, but China’s property woes remain a drag on growth, with some analysts saying that the measures fall short of what is required for a sustainable recovery.   

Measures from the People’s Bank of China (PBoC), the country’s central bank, include lowering payment requirements to 15 per cent for first-home purchases and 25 per cent for second-home purchases.

In addition, the PBoC will provide 300 billion Chinese renminbi ($41 billion) in a relending program for local governments to acquire properties and convert them into social housing. The central bank expects the program to boost bank lending by 500 billion Chinese renminbi. The national floor for mortgage interest rates will also be removed.

Investors differ over whether the policies will work as hoped. There have already been initiatives to help stimulate the property market but so far these have had a limited impact. Investors’ key concerns revolve around the implementation and whether the funding is sufficient to have a significant impact.

Wealth managers
RBC Wealth Management said it is a comprehensive policy package that addresses both the demand and supply sides, although it noted that many of the details regarding implementation remain to be seen, and it will take some time to ascertain whether the property market has bottomed.

RBC WM believes that the initial funding should have an impact on improving market transactions, especially in Tier-1 and Tier-2 cities. “Over the past few years, it wasn’t that the market lacked demand, rather, market transactions were stagnant. Households with rigid demand were hesitant to buy property because they expected housing prices to continue to decline,” RBC WM said. The wealth manager thinks the policies sent a message to households that the government is trying to stabilize the market. Therefore, buyers with rigid demand may start to consider purchasing property.

Based on RBC’s calculations, the initial funding should be sufficient to cover completed housing inventories under 70 square meters nationally, which could be the target of social housing projects, in its view. RBC thinks that the impact of the first round of funding shouldn’t be underestimated, despite its seemingly small amount.

It is not alone in its views. Sheldon Chan, portfolio manager for Asia Credit Bond Strategy, and Chris Kushlis, chief emerging markets macro strategist at asset manager T Rowe Price, think that the new effort, which shifts the focus to reducing inventories, rather than solely focusing on stabilizing demand, represents a significant change in policy focus â€“ a move in the right direction.

“It is clear that the authorities aim to stabilize a sector that had previously experienced unsustainable levels of activity. They have also been striving to achieve this while minimizing spending and maintaining some financial discipline over developers and local governments,” Chan and Kushlis said in a note. Consequently, support measures have consistently been under-scaled and are likely to continue in this manner. They anticipate an iterative process in which the authorities may be pushed to add incremental resources, combined with the market’s slow natural clearing process as excess supply gets worked down, leading to the stabilization of the market at a low level over a six- to 12-month period.

Chan and Kushlis think that property prices will remain under downward pressure for now. However, once the problems surrounding purchase price and sizing of unsold homes are resolved, property prices should begin to stabilize. “Even if the discounts are significant, finding a floor on prices will mark an important phase in this crisis and should gradually boost consumer confidence from its currently depressed levels,” they said.

“A focus on clearing inventory to meet affordable housing goals means there should be less pressure on local governments to build new affordable housing from scratch. Consequently, the construction industry will continue to downsize as a relative share of the economy and employment, resulting in reduced commodity and building materials demand from this sector,” they added.

HSBC Global Private Banking believes that China’s growth momentum will probably be underpinned by the recent macroeconomic and housing policy support, but it seems that the housing starts may need more time to find a bottom. “Recent support measures seem to be enough for some investors to dip their toe in both Mainland China and Hong Kong stocks lately, given low valuations,” Willem Sels, global chief investment officer at HSBC Global Private Banking and Wealth, said in a note.

However, Björn Jesch, global chief investment officer at DWS, believes that India currently offers more opportunities than the Chinese market. "Chinese stocks are still burdened by the frequently low profitability of corporations,” Jesch said this week. Meanwhile, Dina Ting, head of global index portfolio management at California-based investment manager Franklin Templeton, believes that China shouldn’t be written off yet.

See more commentary here.