Developers' survey reveals silver lining

Developers' financing conditions appear to have improved marginally, but mainly because of the increase in sales revenues. Bank and non-bank financing access does not seem to have become easier, although funding costs have reduced marginally.

The developers we surveyed expect continued loosening of policy by the central government in the coming months. The central government has made destocking its key target this year, and implemented more measures to accelerate the digestion of property inventory, including adjustments to down-payment requirements and transaction taxes. This has exceeded market expectations to some extent and sent signals of a change in the central government's policy stance on the housing market.

However, the developers' policy outlook on local governments was neutral. At the local government level, policy divergence will likely become more obvious, with policy measures in top-tier cities aimed at managing financial risks and those in lower-tier cities aimed at expediting the destocking process. Possible policy measures that could be adopted by lower-tier cities may include mortgage loan adjustments, lower down-payment requirements, purchase subsidies, and lower hukou (China's household registration system) barriers.

Our surveyed developers believe adjustments to transaction taxes and purchase subsidies, among other measures, would be the most effective way to boost sales. But given the sudden heat in selected top-tier cities, further loosening of policy measures may be more targeted and measured.

The survey results on investment in the property sector were in line with published data, showing that investment remained weak entering 2016. Forward-looking indices, such as floor space of new starts and land purchases, showed signs of stabilizing at low levels by the end of 2015. This indicates the worst may be over. But the upside risk is also likely limited given the still high inventories. The property market policy loosened notably early this year, compared with a relatively neutral stance in 2015, as the government made clear its intention to support the market and boost demand.

We expect property investment growth to remain in the low single digit this year but see momentum improving versus negative growth as of the end of 2015. And slightly positive property investment growth in 2016 would help stabilize growth.

The author is an economist at Standard Chartered China.