MNI Analysis: No Short-Term Impact From China Pro-Rent Policy

     BEIJING (MNI) - The Chinese government's new campaign to bolster the

country's rental housing market to help satisfy growing urban housing demand and

take some pressure off home purchase prices could have a large impact in the

longer term as the market develops, but will have only limited impact in the

near term, property market analysts and experts told MNI. 

     With investors and market players watching how the government's frequent

policy changes in the property sector impact investment growth in the sector and

further influence China's overall economic performance, the new round of

government policies aimed at boosting the rental housing market have triggered

more uncertainties on the outlook for the sector.

     The government hopes new rules to spur investment in rental housing will,

over time, offset some of the expected easing of property sector growth caused

by tighter government regulation on housing sales, while meeting demand for the

young and families that cannot afford the higher purchase prices in larger

Chinese cities. 

     On Aug. 28, the Ministry of Land and Resources along with the Ministry of

Housing and Urban-Rural Development announced a rule allowing collectively owned

land to be used to develop rental housing in 13 Chinese cities where population

inflows are large and housing prices are some of the highest in the country. The

pilot scheme covers Beijing, Shanghai, Guangzhou, Shenyang, Nanjing, Hangzhou,

Hefei, Xiamen, Zhengzhou, Wuhan, Foshan, Zhaoqing and Chengdu, most of which are

provincial capitals.

     Cindy Huang, director of corporate ratings and a lead analyst covering

China's property market at S&P Global Ratings in Hong Kong, said in an interview

with MNI that the impact of the new rule would be limited in the near term.

"It's a new and pilot policy," she said. "We don't think that it's going to have

a huge impact yet."

     The government said the policy should increase the supply of rental housing

and help build a system where the property sales market and housing rental

sector are given equal importance, but some worry that the planned shift from

for-sale to rental housing could depress overall sector investment in the short

run.  

     "The driving effect of the policy on investment [in the property sector] is

positive and obvious, which could especially drive up investment in collectively

owned land in suburban areas," Yan Yuejin, director of the research department

at E-House, a Shanghai-based property consultancy, told MNI. "But as for the

total volume of property investment, it could reduce some investment in the

traditional housing sales market. So the effect on the overall volume of

investment is uncertain."

     Prior to the Beijing ministries' new policy announcement, Guangzhou, the

capital of Guangdong Province and a large Tier-1 city, announced in mid-July its

own policy of "equal rights for renters and homeowners." It stressed that

renters would be given equal access to public resources, especially schools and

hospitals, part of an attempt to curb housing price growth. 

     Three days after Guangzhou's policy announcement, the Ministry of Housing

and Urban-Rural Development, together with eight other regulators, announced

that 12 cities -- the same ones in the Aug. 28 announcement but including

Shenzhen and excluding Beijing and Shanghai -- would serve as "pilot cities" in

an initiative to expand rental housing by encouraging state-owned enterprises

(SOEs) and private companies to enter the business.

     The announcement stipulated that China should enhance financial support for

rental housing companies and real estate investment trusts (REITs) and increase

the supply of land available for rental housing development.

     In less than two months, some 30 cities have signed onto the policy

directive.

     Huang said she views the policies to advance China's housing rental market

as positive, as they should help hold down runaway prices in large cities,

despite uncertainties on implementation of the policies.

     Zhu Qijun, chief China macroeconomic analyst for Bank of China

International, agreed in a report that the pro-rental housing campaign would put

downward pressure on housing sales prices, though prices would continue to grow.

     "The policies should not have a big impact on the overall development trend

of housing prices in cities where prices are expected to grow, but it should

significantly slow down the growth rate," Zhu noted. "As to cities where

property markets are not attractive, there is no need or motivation to issue

policies to encourage development of the rental market."

     Yan, on the other hand, told MNI that smaller Tier-3 and Tier-4 cities are

unlikely to take steps to bolster their housing rental markets because the

ratios of income to housing sales prices are still relatively low. However, if

the policies are implemented effectively in larger Tier-1 and Tier-2 cities,

some demand for home purchases could be redirected to the rental market.

     "It would slow down some demand to buy a house and postpone people's demand

for home purchases," Yan said.

     Yin Bocheng, director of the real estate research center at Fudan

University, told MNI the policies would not have big impact on the property

markets in giant cities such as Shanghai, where demand remains robust because of

huge population inflows.

     Nevertheless, Huang Shi, chief property analyst at Founder Securities, said

the new policies are expected to slightly enhance investment and new

construction in the property sector in the short term but reduce housing sales

momentum over the next two years.

     The policies would contribute an additional 0.1% to growth of total

property investment in 2017, another 1% in 2018, and zero contribution in 2019,

Huang predicted. Housing construction starts would be 0.1% higher in 2017 due to

the new rental housing policies, 1.1% higher in 2018, and show no increase in

2018. Housing sales would be 0.6% lower this year and 5% lower in 2018 before

increasing 0.2% in 2019, Huang said.

     In the medium to long term (from 2017 to 2030), the rental market,

bolstered by the government policies, will drive growth in the property market.

According to Founder Securities, housing sales would be 2.42 billion square

meters lower than otherwise, representing 12.5% of total new housing demand

during the period. In its place, rental housing construction starts of 0.61

billion square meters would be added, leading to a net 4.2% rise in overall

property sector investment to CNY3.31 trillion.

     "If a large amount of low-priced rental houses is offered in the market, or

the 'equal-rights' movement is too radical, it definitely could cause a shock to

the current property market and housing prices could fluctuate significantly.

And this could trigger an unnecessary shock to the economy, which is not the

goal of the policies," Zhu Qijun warned.

--MNI Beijing Bureau; +86 (10) 8532-5998; email: iris.ouyang@marketnews.com

--MNI Beijing Bureau; +86 (10) 8532-5998; email: vince.morkri@marketnews.com

--MNI BEIJING Bureau; +1 202-371-2121; email: john.carter@mni-news.com

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