New Delhi

The Chinese housing market, a critical sector of the country's economy, continues to grapple with a severe downturn, with no immediate signs of recovery. According to Haibin Zhu, chief economist for China at JPMorgan, the housing market crash is "far from over," with home prices unlikely to find stability until at least 2025 as detailed by him in a conversation with CNBC.

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Recent data from the China Index Academy highlights the ongoing struggles. The average price of new homes sold in 100 cities across China saw a marginal increase of 0.11 per cent from July, a further deceleration from June's growth of 0.13 per cent. In contrast, resale home prices fell by 0.71 per cent compared to the previous month. Year-on-year, average prices for both new and resale homes have declined by more than 1 per cent and 6 per cent, respectively, underscoring the entrenched crisis in the housing market.

The Chinese government has introduced several stimulus initiatives aimed at bolstering the housing sector, but these efforts have been deemed insufficient. Zhu emphasized that these measures have failed to revitalize the market, suggesting that more comprehensive strategies are needed to address the underlying issues. The proposed mortgage refinancing plan, which could enable refinancing on up to $5.4 trillion in mortgages, is also met with skepticism. Experts argue that this plan primarily benefits current homeowners and does not address the demand for new properties.

Doubts over mortgage refinancing and the long term plan

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Winnie Wu, chief equity strategist for China at BofA Securities, expressed doubts about the effectiveness of the mortgage refinancing plan. While some believe it could stimulate consumption, Wu pointed out that lower mortgage rates would likely lead banks to decrease deposit rates to maintain their profit margins. This could ultimately reduce interest earnings on household savings, a move that would not significantly boost overall spending.

Zhu concurred with Wu's assessment, stating that the refinancing policy would do little to invigorate demand for new homes. He stressed that merely cutting rates is not an optimal solution and that squeezing banks' margins will not yield significant results. Instead, Zhu and Wu advocate for the government to foster a "positive feedback loop" to break the downward trend in the housing market.

Further, the prolonged downturn in China's housing market has significant long-term implications for the country's economy. The sector's weakness can impact consumer confidence, reduce spending, and hinder economic growth. As the government continues to explore strategies to stabilize the market, it is clear that a more holistic approach is necessary to restore confidence among homebuyers and investors.

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Hence, China's housing market remains in a state of crisis, with experts predicting a prolonged period of decline. While government initiatives are underway, their effectiveness is being questioned, and a more comprehensive strategy is needed to address the deep-seated issues plaguing the sector. As the situation evolves, it will be crucial to monitor the impact on the broader economy and the measures taken to mitigate the downturn.