MNI: China To Boost Property Demand In Tier One Cities

Chinese local governments, particularly in first-tier cities, will step up efforts to support housing demand in coming months after the nation’s top decision-making body called for policy adjustments to support a sector now struggling with oversupply, advisors and analysts told MNI.

The statement from the Politburo after its July meeting marked a change in attitude towards the property sector, which the body has called out previously for over-speculation. Following the meeting last week, Minister of Housing and Urban-Rural Development Ni Hong called for lower ratios for first-home buyers, tax relief for housing replacement and a loosening of loan restrictions by recognising past mortgagees who do not own a property as first-time buyers.

Easier rules should have a great impact on tier-one cities in particular, said Yan Yuejin, director at the E-house China Research and Development Institution, adding that measures could be enacted from August. He pointed to buyers in Shanghai who want to upgrade and are currently classed as second-time purchasers, facing a 70% downpayment ratio and mortgage rates of 5.25%, noting that these requirements would fall to a 35% down-payment and a rate of 4.55% if they are given the same treatment as first-time buyers.

“Policy should not only focus on pulling up market transactions but also highlighting risk prevention,” said Yan, emphasising the need to review all restrictions brought in since 2016.

More detailed guidance from government departments for easing restrictions could come soon following Ni’s call, said Xie Yifeng, dean at China Urban Real Estate Research Institute and a Ministry of Housing and Urban-Rural Development consultant, noting that a jump by property stocks to near bull-market territory last week could fizzle out without prompt and concrete announcements.

Measures should include cuts in down-payment ratios for first and second homes to 20% and 30% nationwide, Xie said, arguing that higher requirements had curbed demand in tier-one cities for years. If initial attempts to revive the property market see limited success and third-quarter economic growth remains under pressure, authorities will turn to stronger measures such as relaxing homebuying restrictions in tier-ones, he said, noting that Ni had reaffirmed real estate as one of the economy’s key pillars.

Some 40% of Chinese bank loans, 50% of local government fiscal strength and 60% of private wealth are linked to real estate, noted Li Yujia, chief research fellow at Guangdong Urban & Rural Planning and Design Institute. The development of affordable housing will be key to reviving the sector, he said, pointing to potential demand from 300-400 million “new citizens” – migrant workers and young people – though high youth unemployment remains a challenge. (See: MNI INTERVIEW: China Property Moves To Ease Local Debt Strains)

Xie noted that the Politburo had called for an increase in the construction and supply of affordable housing. Local authorities and state-owned enterprises may consider purchasing and transforming commercial housings into low-rent, public-rental housings, he suggested.

Li warned that measures making it easier to buy and sell homes also risk losing impetus if they simply prompt owners worried about their future incomes to cash out. “The high-income group is less willing to allocate to real estate assets, while the middle class is fully leveraged,” said Li.

Risk has begun to spread to previously more solid, state-owned, developers, increasing the danger that housing projects will remain unfinished, while home prices in tier-one cities lead declines, according to Li.

The Politburo’s call for action “sends an important signal that a disorderly downturn will not be tolerated,” he said.