Although property sales of China's largest developers have rebounded since March as the economy gradually reopens, experts said it is too early to gauge when the nation's housing market will fully recover from a slowdown that started long before the pandemic lockdown.

In March, the combined contracted sales of the 10 largest developers by assets that also disclose monthly operational data rose to 260.45 billion yuan, ending four straight months of decline, according to company statements. In April, the combined sales increased further to 296.53 billion yuan, up 8.9% from a year earlier, the first year-over-year rise in 2020.

However, for the first four months of this year, combined contracted sales of top developers were still 4.03% less than a year earlier. The developers in this sample are China Evergrande Group, Country Garden Holdings Co. Ltd., China Vanke Co. Ltd., Sunac China Holdings Ltd., Longfor Group Holdings Ltd., Seazen Group Ltd., Guangzhou R&F Properties Co. Ltd., Greentown China Holdings Ltd., Cifi Holdings (Group) Co. Ltd. and Agile Group Holdings Ltd.

"The rebound [has] not [been] remarkable nor surprising," said Victor Cheung, CEO and executive director of Midland Holdings Ltd.'s China division. "Given the economic development was pulled off track by the COVID-19 pandemic, to tell whether or not the market has recovered, we have to wait for the sales figures in the second half of 2020."

China's property market started cooling long before the world's first COVID-19 cases were reported in Hubei province toward the end of 2019 and then a nationwide lockdown for most of the first quarter of 2020.

In recent years, Beijing has also been stepping up regulations to crack down on "speculative activities" in the housing market, while the nation's economy continued slowing amid the unwinding of financial risk and then U.S.-China trade tensions.

In 2019, the total area of commercial real estate sold — including homes, offices, hotel and retail space — fell 0.1% from a year earlier, compared to a year-over-year increase of 1.3% and 7.7% in 2018 and 2017, respectively, according to the National Bureau of Statistics of China.

Now, as China's economy contracted for the first time on record in the first quarter, and many of its trading partners are reporting recessions, an uncertain global economic outlook will weigh on the export-reliant economy and its housing market, experts said.

"Given both internal and external downward pressure brought by the stumbling global economy and slow economic recovery in Europe and the U.S., it is expected that the national gross floor area sold will be on par with that of 2019, with single-digit growth in property prices," Cheung said.

Falling mortgage rates

The rebound since March is in part due to the decline of mortgage rates as the central bank continued pumping liquidity into the banking system and guiding benchmark rates lower, according to Philip Zhong, senior equity analyst at Morningstar Investment Management Asia Ltd.

"Government policies on lending, mortgage and interest rates would definitely support further recovery of the sector as they would stimulate transactions by lowering mortgage loan rates," he said.

Among these policies are China's reduction of the rate on its medium-term lending facility and the central bank's trimming of banks' reserve ratios since the beginning of 2018.

Having said that, Beijing is unlikely to loosen its tight grip on "speculative activities" that was seen as the culprit of the credit-fueled economic growth in most of the previous decade, they said.

"The property market is likely to be steady without huge ups and downs," Cheung said, adding "the state may intervene if the market is too hot or too cold."

Discounts, sales tactics

Another factor behind the recent rebound is that the developers offered discounts to buyers while becoming more creative in online marketing and selling.

China Evergrande, the nation's largest developer by assets, is a case in point. Despite the market slowdown, the company reported monthly growth in contracted sales so far this year. While the use of online marketing helped the company's sales, Zhong said it was also due to its discounts for buyers, which were reflected in its lower average selling price.

Though it may be difficult for developers to achieve their annual sales targets this year, Cheung said developers should avoid increasing prices or reducing discounts too soon after the pandemic is under control, as this may choke the recovery of the property market.

As the Chinese property market growth slows, Zhong said developers are increasingly diversifying into other businesses such as property management to improve its earnings.

Longfor Group is one of these developers, making its move in April when it injected an additional HK$1.30 billion in Greentown Service Group Co. Ltd. in pursuit of its plan to expand its property management and consulting services.

"The property market is getting more complex this year as corporations are facing tougher operation challenges, the economy is suffering stronger downward pressure while people are expecting an income drop under the coronavirus pandemic," Cheung said.

As of June 1, US$1 was equivalent to 7.13 Chinese yuan.