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China’s recent mortgage easing and the support policies in the four top-tier cities will help restore homebuyers’ confidence and ease pressure on household interest payments to a moderate extent, which will be conducive to a rebound in sales in the fourth quarter beyond seasonal factors, said Goldman Sachs in a note.
As the measures will push up household leverage, the positive impact may not be sustainable over the long term to soothe the impacts of operating deleveraging and downward pressure on the average selling prices, because household leverage has already risen with the weakening ability to repay their debts since the last round of economic downturn in 2014, it said.
The policy of determining first-time mortgage qualification with home ownership instead of mortgage records has some short-term side-effects, which may lead to a surge in the supply of second-hand flats, but the number of potential buyers is still insufficient in the face of macro challenges, it noted.
The government will gradually shift from the current “phase 1 relaxation”, which involves lifting the previous restrictions on home purchases, mortgages and property prices, to “phase 2 relaxation”, where the government will likely make deeper use of its balance sheet to ease the deleveraging pressure on the property sector by providing financial resources to homebuyers and developers, it said.
Although the property sector’s earnings results were disappointing with continued losses across the board, companies with strong balance sheets and access to capital would see an earlier and stronger recovery in gross margins and growth in the coming years, it said.
Goldman’s top pick in the sector is China Overseas Land and Investment which is included in the Conviction Buy List. Other Buy-rated stocks includes China Overseas Grand Oceans, China Resources Land, China Jinmao, Greentown China and Longfor Group.