China Property Woes Keep Asian Markets In Check

Arjun Pandit
05 Sep, 2023
Mumbai

Market indexes in Asia traded in tight range as China property sector worries dominated bond and stock market sentiment. 

Moreover, China's additional stimulus measures to support the property market and cut mortgage rates for first home buyers fell short of market expectations. 

Economists are increasingly worried that China will be forced to consolidate property developers and may have to either nationalize or rescue a few large developers and remove all price barriers for future property transactions. 

Chinese real estate developers led decliners, with China Resources Land falling 5% and China Overseas Land and Investment dropping 3%. 

On Friday, China announced new measures to support the property market and yuan.

Minimum down payments for mortgages will be cut to 20% for first-time home buyers and 30% for the second-time buyers, according to joint statements by the People’s Bank of China and National Administration of Financial Regulations.    

In addition, the central bank also lowered interest rates on new mortgage rates by 40 basis points for the premium to its benchmark loan prime rate. 

Regulators also said mortgage rates on existing loans can be renegotiated starting as early as September 25.

The lowered rates are likely to help 40 million home buyers, or about two thirds of housing loans in the country.  

The PBOC announced foreign exchange reserve requirements to 4% from 6% for banks, to support the weakening yuan which has been under pressure for the last five months.

The yuan has dropped around 6% as foreign investors pulled out of China amid deepening real estate crisis.

A private survey of the service industry highlighted uneven recovery as the growth slowed. 

The Caixin China General Service PMI eased to 51.8 in August from 51.9 in July, S&P Global reported Tuesday.  

The services sector activity growth was the weakest since the beginning of the year, amid persistent downward pressure on the economy.  

New order growth slowed while export sales fell for the first time since December and at the same time sentiment index declined to a 9-month low.

The weakness in the construction sector and falling exports are negatively impacting services related to these industries. Moreover, the expected sharp rebound in travel related services is weaker than expected. 

In Tuesday's trading, the Nikkei index increased 0.1%, the Shanghai SSE Composite index fell 0.5%, the Hang Seng index fell 1.5% and the KOSPI index decreased 0.08%.  

In August, the Nikkei index fell 0.6%, the SSE Composite index declined 5.2%, the Hang Seng index fell 8.2% and the KOSPI index decreased 4.2%.