MNI: China's Housing Market Set For Restriction Relaxations

China will likely further relax property-market restrictions to prop up the weakening sector in the second half, though the depth of support will depend on growth pressures and any major stimulus should wait until after July’s politburo meeting, policy advisors and market analysts told MNI.

The housing market continued its downward spiral in Q2 after a brief rebound in Q1, with new home sales in 100 key cities falling 26% and 8% m/m per square metre in April and May, China Index Academy data showed. This followed deeper falls in real-estate investment, as developers suffered poor liquidity amid weak sales, pressure to deliver unfinished projects and debt maturity. On Monday, China extended a policy released last year to allow developers to postpone or swap their loans.

“The effect of previous policy support has faded, while residents’ shrinking balance sheets amid reduced income expectations has also led to lower appetite for houses,” said Wang Jun, director at the China Chief Economist Forum and chief economist at Huatai Asset Management. Wang believes authorities should not exit stimulus too early to allow homeowners and developers to repair their balance sheets following the pandemic.

Xie Yifeng, dean at China Urban Real Estate Research Institute and a Ministry of Housing and Urban-Rural Development consultant, called for greater relaxation, including a comprehensive removal of restrictions preventing the purchase of a third and more homes, as well as limitations on mortgage loans, home prices and resale.

“Market confidence would only be restored on strong stimulus, as current measures are not enough to reverse the real-estate downturn,” he continued. Authorities may increase stimulus in July should Q2 economic indicators, scheduled for release next week, print below market expectations, he added.

RESTRICTION RELAXATION

Yan Yuejin, director at E-house China Research and Development Institution, agreed authorities should relax restrictions now otherwise, “it may be too difficult to do it next time”. He expects measures at the central government level, which could include major breakthroughs in lowering tax rates and down-payment ratios as well as the removal of home purchase restrictions even in tier-one cities.

Local government may lack the will to boost the real-estate sector significantly, while Q2 GDP could print at about 7% thanks to the low comparison base for same period last year, noted Wang. He predicted GDP will record slightly above the 5% target for 2023 based on current policy strength. Wang saw little chance for a complete reversal of restrictive measures, especially for tier-one cities. However, authorities will likely test the water in some districts in the context of “One District One Policy”.

The Beijing local government has said families with more than one child could expect more preferential policies in the southwest Fangshan district. “It is a signal for piloting the removal of home purchase restriction in certain districts,” Wang added.

Meanwhile, authorities should continue to lower home purchase costs, including a mortgage-rate cut that should apply to first and second homebuyers, according to Wang. He sees room for another 10-20bp cut this year to the five-year Loan Prime Rate, the benchmark many banks base their mortgage on.

Xie added that the politburo meeting – usually held at the end of July – would be an important time to gauge whether top policymakers would downplay the “house is for living in, not for speculation” principal.

Yan, however, argued homeowners aspiring towards upgrading their home does not necessarily count as speculation, or go against the principal.