MNI: Chinese Cities To Ease Housing Restrictions Significantly

Major cities will significantly relax homebuying restrictions to help reduce housing inventory in line with Beijing’s latest policy directive, advisors and analysts told MNI, adding that local authorities could absorb developers’ unsold stock into social-housing programmes.

Local governments will likely undertake an unprecedented wave of policy relaxation in May, said Yan Yuejin, director at the E-house China Research and Development Institution.

Upper tier-two city Hangzhou’s move to fully lift all home purchase restrictions on Thursday will encourage more aggressive and comprehensive easing by other cities, and boost market sentiment to help destocking, Yan added. The relaxations will stand in contrast to previous more progressive approaches, he said.

The Politburo meeting last week pledged to “coordinate policies to digest existing properties and opitmise new housings,” which many believe signaled a policy shift to destocking. The communications immediately prompted Beijing city to relax home purchase limits in suburban areas and Shenzhen – another tier one metro – to lower the income tax or social security threshold for homebuying in non-core districts.

Li Yujia, chief research fellow at Guangdong Urban & Rural Planning and Design Institute, said new home sales rates dropped to about 30% in key cities this year, while listings of established houses continued to reach new highs.

The second-hand listings in Shenzhen and Shanghai surged by 229.6%, and 78.5% y/y in March, but transaction volumes decreased by 2.0%, and 24.2% y/y.

STATE ACQUISITION

House trade-in schemes will only reduce inventory marginally, Li argued, suggesting authorities should cut off ineffective new supply.(See MNI EM: China's Housing Trade-ins Will Struggle To Reverse Downturn)

A recent Ministry of Natural Resources document paused local-government residential land supply if their destocking cycle exceeded three years.

Li suggested authorities should acquire long-vacant new home projects, using innovative monetary-policy tools or government special funds.

Liu Xiahui, a researcher at the Chinese Academy of Social Sciences (CASS)’s Institute of Economics agreed state acquisition will help increase supply of affordable housings in a cost-effective way, however, local-government fiscal strength will limit the size of the programme.

PRICE FREEDOM

Liu said fragile consumer confidence following the pandemic and developer defaults over the past two years had temporarily suppressed housing demand, which will be supported in future by further urbanisation.

However, the housing market increasingly faced structural mismatch between supply and demand, as some existing homes failed to meet living standards, he added, noting the Politburo meeting had highlighted high-quality housing.

The government should improve public infrastructure, reduce transaction costs with lower taxes and fees, and lift restrictive policies as much as possible to promote destocking, Liu argued.

“Any limit or guidance on home prices should be removed to allow putting a floor on prices, especially when there is no significant supply-demand imbalance,” he said, noting this will help potential homebuyers trust the market again.

Xiao Lisheng, a researcher of international finance at CASS recently said at a forum real-estate construction, investment and sales have declined about 40-50% since 2021, close to the lower limit of adjustments overseas housing experienced during the U.S. subprime mortgage crisis, the European debt crisis and Japan's late 1990s. China’s home prices, however, have fallen about 20% from their high point, leaving room for further adjustment, he added.

China’s real-estate sector will gradually stabilise this year should no other major developer default, Liu continued, adding authorities need to increase funding support to leading developers experiencing a short-term liquidity crunch. (See MNI EM INTERVIEW: China To Contain Property Spillover - Advisor)

The economy will grow over 5% in 2024 should real estate stabilise, with support from external demand, pro-growth policy reserves – such as possible central bank treasury trades – as well as marketisation reforms expected to be released during the long-awaited third plenary session of the Communist Party in July, he argued.