MNI EXCLUSIVE: China Property Investment To Grow 5%+: Advisors

Real estate investment in China will grow at least 5% next year as land sales recover and builders, constrained by tighter financing rules, accelerate project launches and home sales to improve their cash flow, policy advisors told MNI.

The area of land sold across the country fell 3.3% in the first 10 months of this year with the decline accelerating after Beijing proposed the "three red lines" rule in August linking developers' borrowing to their performance on major debt ratios. By contrast, overall property investment continued to grow, reaching 6.3% as of October, driven partly by cheap credit in the wake of the pandemic and discounted home prices.

The impact from slowing land sales will spill into next year and limit new projects but the rush to sell ongoing and completed developments will provide some buffer, said Li Yujia, chief research fellow at Guangdong Urban & Rural Planning and Design Institute, who advises the provincial government.

He expects land sales to pick up when commercial banks release fresh quotas for developer credit next year. Some state-owned developers with steady leverage ratios will buy more land since financial conditions will limit competition and aggressive bidding for parcels, he said. "Property investment should grow above 5% next year," Li added.

ADMINISTRATIVE MEASURES

Yan Yuejin, director of E-house China Research and Development Institution, thinks real estate investment growth next year is likely to remain in a 5-10% band, reflecting the government's tolerance limits. Any signs of a sharp fall will prompt local governments, who depend on land sales for a large part of their revenue, to relax administrative criteria for home purchases within their purview, such as requirements related to residency or social security payments and down payment levels. But the local authorities will adhere to the unwritten guideline of "no speculation, stable prices and more transactions," he said.

The central government's stance on the sector remains hawkish - a meeting held early this month by Vice Premier Han Zheng yielded a proposal to "strengthen real estate financial regulation" for the first time. "This means Beijing will meet reasonable demand for capital from developers, but won't allow excessive capital flows into the sector," said Li. He expects controls on the amount that commercial banks can lend to both developers and buyers to continue as Beijing takes aim at loopholes that borrowers exploit to get around quotas.

Although home prices have risen so far this year, the picture across cities is mixed. There is risk of a property market downturn in smaller third- and fourth-tier cities because people are moving to the big cities, said Yan and Hu Gang, a professor with Jinan University and a city planning advisor for the Guangzhou municipal government.

Li said that some relaxation of purchase restrictions is necessary in cities like Harbin in northeast China where the market is cooling, adding that this is in line with the central government's preference for city-specific policies.