MNI: China's Mega Cities To Ease Homebuying Limits Progressively

First-tier cities in China will likely ease homebuying restrictions progressively to stimulate demand without stirring up house prices, however, limited policy intensity and low consumer confidence could still stunt any durable sales rebound, advisors and analysts told MNI.

Guangzhou last month completely eased restrictions on large home sales, while Shanghai also allowed single non-local residents to buy homes in some suburban areas, following the Ministry of Housing and Urban-Rural Development's decision at the end of January to give all cities full autonomy to adjust local policies.

Sales center visits increased rapidly after the new policies were introduced, though sales data has not yet reflected the trend, said Liu Shui, corporate research director at the China Index Academy. He expects the Guangzhou and Shanghai housing markets to pick up after the week-long Spring Festival starting February 10.

Beijing and Shenzhen should follow and gradually remove the purchase limit down to the district-level, said Liu, adding second-tier cities will likely abolish purchase restrictions completely.

Shenzhen on Wednesday lowered some restrictions, but kept the two-house for local families and one-house limit for singles and non-local residents.

Xie Yifeng, dean at the China Urban Real Estate Research Institute and a housing ministry consultant, noted any relaxations will encourage upgrading needs first. However, tier-one cities still seemed hesitant to scrap purchase restrictions too quickly to avoid a sudden surge in house prices or an increase in leverage to buy investments, as the ministry would hold them accountable should problems arise, he noted.

First-tier cities in August 2023 began to loosen loan restrictions and lower down-payment and mortgage rates, but market rebounds were short-lived, said Xie, attributing the unsustainability to limited policy intensity, a lack of confidence on the delivery of housing projects, falling home prices and the uncertain economic recovery.

Tier-one relaxations could stem the decline in home sales nationwide, which fell 6.5% y/y in 2023, and help awaken markets in neighbouring areas, Xie predicted.

PROJECT-BASED SUPPORT

The central government revealed plans to fund property projects under a new “whitelist” financing program to guarantee delivery late last month.

“Debts of real estate developers are way too large and too complicated, thus tailoring financial support down to a single project would help reduce banks’ risk exposure to the crisis-hit sector,” Xie explained, noting this highlighted the policy intention to bail out projects, not developers.

State media reported 170 cities in 26 provinces had proposed their first batch of more than 3,000 favoured projects to commercial banks by the end of January, with a total CNY17.86 billion of loans already earmarked for 83 such projects.

Though Xie cautioned bank concern over developer profit and asset quality would hinder the mechanism, the actual lending would only meet a part of the proposed financing needs. “Banks will assess the projects’ potential sales performance, debt repayment sources, and the key lies in whether project companies can provide high-quality collaterals,” said Xie.

FALLING INVESTMENT

Real-estate investment, which fell 9.6% y/y in 2023, may fail to rebound, said Xie, pointing to the slow progress of the “three major projects” urban village renovation, affordable housing and public infrastructure scheme intended to shore up the struggling property market.

While the People’s Bank of China has lent policy bank loans totalling CNY500 billion so far via its pledged supplementary lending (PSL) facility to support these projects, funds have not yet been allocated. “Ideally, ‘three major projects’ would drive CNY1-2 trillion investment this year,” said Xie, adding local governments also needed fiscal strength to drive the projects forward. (See: MNI: High Local Targets Hint At Further China Gov. Leverage)