China real estate sector may improve; won’t be high-growth market:

The tide may be turning on China’s battered real estate market.

Investor confidence in the sector appears to be improving, as bond trading volumes and prices rose in recent weeks, in part boosted by the government’s promise to support the sector and some loosening of policies.

But analysts say China’s high-growth property market may be a thing of the past, set to be “changed forever” following the recent shakeup in the sector.

S&P Global Ratings said in an early April report that China’s policy crackdown on its residential housing market has “bottomed,” but that it will take several quarters for markets to feel the effects of the regulatory easing.

“When China’s residential market emerges from this correction, it may be changed forever,” S&P said. “We anticipate fewer developers will be able to employ the highly leveraged, fast-churn strategy that brought past success.”

Recent reports show that some cities and banks are willing to support real estate again after a plunge in home sales in the last few months.

Since March, due to weakening market demand, banks in more than 100 cities in China have lowered mortgage rates by an average of 20 to 60 basis points, Zou Lan, director of the People’s Bank of China’s financial markets department, told reporters Thursday.

He also noted how Covid had affected some people’s income and their ability to pay mortgages on time.

“The government’s stance [is] trying to prevent the contagion, preventing the spillover from the real estate sector spillover to the real economy,” Gary Ng, Asia-Pacific economist at Natixis, told CNBC in a phone interview earlier this month.

Any change in China’s real estate industry has significant implications for the economy since property and related sectors account for roughly a quarter of GDP, according to Moody’s. The latest wave of Covid restrictions has added pressure to growth that was already slowing.

“The measures may have been too tight. Now we see this fine tuning of the policy,” Ng said. “The worst time is over basically for those developers who are broadly in line with the current regulatory target or framework.”

The problems of real estate developers in China came to a head after the authorities rolled out the so-called “three red lines” policy in August 2020, aimed at reining in developers after years of growth fueled by excessive debt. The policy places a limit on debt in relation to a firm’s cash flows, assets and capital levels.

While many developers reduced their debt levels accordingly, a result of the policy was that banks became less willing to lend…