MNI:China May Loosen Mortgage Rules In Property Slump-Advisors

China could marginally relax home lending quotas amid a softer-than-expected high season for sales and avoid, for now, new short-term regulation targeting the real estate sector as current tight controls are acting as a drag on the economy, policy advisors told MNI.

A chill has swept through China's property markets since August as regulators have tightened rules on banks' lending to developers and for some mortgage products in the past year with the debt crisis at China Evergrande Group adding more downward pressure.

Sales of commercial residential housing dropped by 15.5% on an annual basis in August, while sales volumes fell by 18.7%, y/y, according to National Bureau of Statistics, for the worst showing since the 2008 global financial crisis.

"it is impossible for regulators to make new or tighter policies to crack down on the property market in the near term since the target of curbing a heated property market is working," said Lian Ping, chief economist at Zhixin Investment Research Institute, noting both housing prices and sales are falling.

Relaxing rules on mortgage loans for homebuyers, especially in cities with stable or even falling home prices would be more appropriate, Lian said.

"This will help to improve the liquidity condition of developers and is unlikely to further push up home prices which have hit an inflection point for a downturn," he said.

DETERMINED

Still, regulators longer-term want to change the dynamics of China's property markets away from speculation, with plans to introduce measures that could include a nationwide property tax, see: MNI:China May Extend Property Tax Pilot Despite Market Tremors.

"Cities like Shanghai and Chongqing that have levied the tax as a pilot could expand it, and cities which have seen a jump of housing price may also be included," Lian said.

"A nationwide property tax could be launched as soon as the second half of next year or in 2023."

HELP THE DEVELOPERS

Wang Jun, an academic committee member at the China Center for International Economic Exchanges and chief economist of Zhongyuan Bank, agrees that mortgage rules need a softer approach.

He said some industry insiders are also calling for adjustments to the proportions on bank lending levels that can go to home buyers and property developers. Currently, small, medium and large banks have different upper loan limits, but "it makes more sense to vary the upper limit for different regions," said Wang.

However, both Lian and Wang said a general relaxation on property dealing would be impossible after the central bank unusually emphasised healthy development of the housing market in its Q3 monetary policy meeting this week.

Evergrande is one of the few major developers that have crossed all the so-called "three red lines" capping debt ratios, with its liabilities close to 2% of the GDP.

But at least 70 or 80 developers have lowered their asset-liability ratios recently by quickening home sales or withdrawing from raising new debt after maturity, according to Lian.

EVERGRANDE

"The Evergrande incident will dampen market expectations for the property sector, even though it may have limited direct impact on the overall economy," said Lian, an economist who just participated in an advisory meeting of the National Development and Reform Commission, predicting 5% or less GDP growth for Q4 and 2022 Q1.

But the " bearish outlook could further discourage real estate investment, weaken home-related consumption and further add to downward economic pressure," Lian added.

An advisor to a state-owned bank however told MNI that economic headwinds are getting stronger, with spending and investment weakening.

A sharp fall in the property market, which made a major contribution to a jump of 12.7% in GDP in the first half of this year, would dampen the economy further, the advisor said.

China's economy is expected to expand 8.1% in 2021, according to the IMF, off a low base. But that pace is expected to fall sharply next year, the advisor said, adding that an above 5% average pace is needed from 2021 to 2025.