News Alert: 2nd mortgage down payment ratio cuts in key tier 2 cities was put off but still indicate more supportive policies to come
- News reported that Tier-2 cities of Nanjing, Suzhou, Wuxi have decided to cut the required down payment ratio on first and second homes last Friday but was later called off
- Although the official documents are not yet announced, we believe the local government of key tier-2 cities are more willing to consider stepping up a notch in terms of policy support
- We believe the actual impact it could have on homebuyer sentiments and thus on property sales may require time to be seen
- The lingering concern over completion risk of presold properties may potentially shift homebuyers to secondary market, which could benefit property agency – Beike (BEKE US).
- We recommend investors to stay with quality names to ride on the potential release of effective supporting measures – COLI (688 HK), CR Land (1109 HK), Yuexiu (123 HK) and COGO (81 HK)
What’s new:
News reported that Tier-2 cities of Nanjing, Suzhou, Wuxi in Zhejiang Province have decided to cut the required down payment ratio on first and second homes last Friday, buyers that has one property at hand but have already repaid their mortgage in full will be considered as first-home buyers with 30% down payment ratio. The policy has been put off shortly and the official confirmation is yet to be announced.
News source: https://www.sohu.com/a/576358192_120199291
Our view:
Sign for a step up in policy support, if materialized. While policy direction has turned more supportive since early 2022, the pace and the intensity of the policy support so far has been gradual. Meaningful measures such as down payment ratio cuts were not rare, but have previously been limited only to lower tiered cities that had weaker economic and property demand outlook. Tier 1 and key tier 2 cities were also introduced with supportive policies, but magnitude of which have been much more subtle (e.g. Guangzhou loosened their Huzhou policy to attract talents, Beijing selected 3 land parcels in their 2nd batch centralized land auction as a trial to lower down payment ratio to 35% for elderly without outstanding mortgages). Although the official documents are not yet announced, we believe the local government of key tier-2 cities are more willing to consider stepping up a notch in terms of policy support as well as the signal that the overall policy direction remains supportive. We think it is likely to implement the down payment ratio cuts in higher-tier cities eventually, albeit a gradual manner and more cities will follow suit to introduce favorable policies to stabilize market sentiment.
Impact of supportive policies remains to be seen. Homebuyer sentiment has been weak upon reignited concerns over project delivery risk, especially as those handful surviving quality POE developers and semi-SOE names that are previously deemed safer now facing tougher headwinds on the refinancing front with capital market sentiment becoming increasingly volatile. With this in mind, while the step-up of policy support is a much needed and welcomed move, we believe the actual impact it could have on homebuyer sentiments and thus on property sales may require time to be seen. Meanwhile, the lingering concern over completion risk of presold properties may potentially shift homebuyers to secondary market, which could benefit property agency player – Beike (BEKE US).
Stay with quality names to ride on the potential new round of policy support. The upcoming results season in Aug could bring about negative news flow due to completion delays and margin compression. High beta names will likely continue to exhibit strong price volatility along the way. We recommend investors to stay with quality names to ride on the potential release of effective supporting measures and more signs of physical market stabilization – COLI (688 HK), CR Land (1109 HK), Yuexiu (123 HK) and COGO (81 HK).