"There is a vicious cycle playing out between the deteriorating credit conditions of property developers and falling new home prices," he notes.

"This negative feedback loop ultimately heightens the importance of policymaker and regulator intervention to improve the credit quality of China's property developers.

"Chinese authorities intervened recently to ensure China Vanke avoided a default on its maturing dollar denominated bonds in Hong Kong on 11 March.

"China Vanke is reportedly now in talks with 12 major banks, including state owned financial institutions, to provide a syndicated loan to meet upcoming repayments.

"While it's too early to say whether government efforts to rescue China Vanke will be successful, China Vanke is the first property developer to receive a government bailout in the current housing crisis. The treatment of China Vanke contrasts with major developers like Evergrande and Country Garden, who were allowed to default.

"We see two key reasons for this preferential treatment. First, China Vanke's biggest shareholder is state owned Shenzhen Metro. Both Evergrande and Country Garden were privately owned. Second, Vanke's debt crisis has been driven by a fall in sales revenue, as opposed to high leverage and high risk taking behaviour. As such, the default of China Vanke has the potential to become a contagion event for China's property and financial sector.

"While the bailout of China Vanke is a significant change in rhetoric for China's government, it's still too early to say that China's property sector is at a turning point. With steel consumption in China's property sector slanted towards the early stages of construction, we have higher confidence that property related steel demand will continue to remain subdued given a meaningful turnaround in the financial health of China's property developers will be needed to boost new construction activity."