MNI EXCLUSIVE: China May Ease Real Estate Rules, But Not Much

By Wanxia Lin

     BEIJING (MNI) - Sales restrictions and purchase limits designed to regulate

real estate in smaller Chinese cities may be slightly relaxed next year as the

government seeks to avoid a slide in growth, but a broader easing of the

country's bubble-prone property markets is unlikely unless housing prices slide

or developers face a significant risk of defaulting on bonds, advisors at

government-backed think tanks told MNI.

     The omission of a key phrase from the communique issued by the annual

Central Economic Work Conference, a major policy event which sets the economic

agenda for 2020, indicates that "marginal easing of the property sector can be

expected," said Cai Zhen, director of the Real Estate Finance Research Center at

the National Institution for Finance & Development.

     "More priority will be given to stabilising growth than preventing risks

next year," Cai said, after the communique left out the phrase "not to use

property as a short-term means of stimulating the economy."

     Cities are likely to be given more autonomy to manage their markets, he

said, anticipating more projects to renew shanty towns, as well as relaxation of

rules in smaller, second-tier cities as local governments bid to shore up

revenues hit by a fall in demand for land by property developers.

     "The Conference emphasised the importance of stabilising land prices,

putting it before stabilising home prices and property market expectations,"

said Cai.

     Any easing would be likely to take the form of encouragement by cities for

highly educated people to buy homes or relaxing the minimum time housing has to

be held before it can be sold, according to Yan Yuejin, research director at the

Shanghai E-House Real Estate Research Institute.

     --DEFAULT RISK

     But, overall, China's property regulations will stay tight, barring a

precipitous decline in house prices, said Kuang Weida, director of the Urban and

Real Estate Research Center at the National Academy of Development and Strategy.

     Moves in second-tier cities like Foshan, Nanjing and Tianjin to marginally

ease purchasing limits for relatively small groups of buyers are unlikely to

impact the market overall, said Kuang, adding that regulations in first-tier

cities will not be loosened.

     The threat of a significant mass of defaults by developers with long debt

chains might also prompt regulatory relaxation, said Cai. While fewer than 400

developers entered bankruptcy in the first 10 months of this year, compared to

over 400 in all of 2018, if this number were to rise significantly, the

authorities might take action, he said.

     Property developers will see domestic credit bond maturities double to

CNY716 billion in 2021 from about CNY338.1 billion in 2019 and CNY375.2 billion

in 2020, according to Cai.

     "They still have time to roll over debt," said Cai, who described himself

as cautiously optimistic that the risk could be managed. While some struggling

developers may be suffering as a consequence of over-indebtedness and

mismanagement, others may be under pressure due to excessively tight policy by

the authorities, he said.

     Financing conditions for developers may be eased next year, according to

market analyst Yan, as the authorities prioritise growth.

     As of October, Chinese developers had accumulated debts of about CNY21

trillion, of which CNY12-13 trillion will come due in the coming two years,

according to Kuang. He estimated that 30% of these liabilities will not be

repaid, forcing a similar proportion of medium- and small-sized developers from

the market.

     Industry consolidation would strengthen developers, Kuang said, adding that

the government should at the same time prevent monopolies from forming in

regional housing markets.

--MNI Beijing Bureau; +86 (10) 8532-5998; email: wanxia.lin@marketnews.com

--MNI London Bureau; +44 203 865 3829; email: jason.webb@marketnews.com

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