MNI: China Eyes More Property Rule Relaxations If Sales Soft

Local governments are weighing whether to scrap rules limiting the purchase of multiple houses by homeowners should the latest mortgage rule relaxations fail to stimulate sales during the Sept-Oct peak season, however, any change will likely occur in Q4, policy advisors and market analysts told MNI.

Second-hand home sales for Beijing and Shanghai doubled over the weekend following the implementation of the rule change by all four tier-one cities. The change means authorities will recognise those buyers with a mortgage history that do not currently own a home as a first-time buyer, allowing them to benefit from a lower down payment and interest rates.

Policymakers want to halt the recent rapid slide in transaction volume and market sentiment by making good use of the upcoming peak season, and Nov and Dec, a crucial time for developers to boost performance, said Li Yujia, chief research fellow at Guangdong Urban & Rural Planning and Design Institute.

Wang Jun, director at the China Chief Economist Forum and chief economist at Huatai Asset Management, noted policy intensity was slightly beyond expectation, which worked rapidly to unleash demand for those seeking to upgrade. However, Wang wants more time to assess the demand's sustainability and whether Sept-Oct sales can outperform the start of the year, which benefited from pent-up Covid-19 demand following the country’s reopening.

FURTHER EASINGS

Wang believes authorities will likely ease restrictions further in Q4 should sales fail to rise significantly, as current measures will not turn the tide of the ailing sector. Wang called on tier-one cities to lift home-purchasing curbs in non-core districts and implement nationwide minimum down payments uniformly, which the People’s Bank of China set last week at 20% for first-time buyers and 30% for second-time purchasers.

Wang stressed authorities should remove price caps on new homes – designed for local governments to control prices – to allow the market to find a new balance due to the oversupply. “Compared to other cost-lowering measures, allowing developers to cut prices will substantially attract homebuyers,” he said, adding room also existed for a 20bp cut to the five-year Loan Prime Rate, which lenders base mortgage rates on.

Beijing and Shanghai have benefited the most from mortgage relaxation, and demand for upgrades will rise alongside existing home sales, said Yan Yuejin, director at the E-house China Research and Development Institution. However, housing markets in other major cities, including Shenzhen and Hangzhou, will still need further stimulus, he added.

Li estimated home sales per square meter could potentially achieve a U-shape recovery and record 5% y/y growth for 2023, rebounding from the 6.5% decline in the Jan-Jul period, as tier-one relaxations may also drive markets in the three major metropolitan areas which account for 70% of the total value of new home sales nationwide. A more pessimistic forecast, however, would see yearly growth falling as much as 5%, he added.

While both Wang and Li believe the end of harsh restrictive measures represents policy correction, they do not think the shift will drive a housing boom thanks to weakened expectations towards higher housing prices and income.