MNI EXCLUSIVE: China May Tighten Rules As Property Heats Up

BEIJING Chinese authorities are likely to impose additional restrictions on real estate-related transactions in some of the country's biggest cities in the second half of 2020 to stem property market overheating, policy advisors and a market analyst told MNI.

Officials from ten housing hotspots including Shenzhen and Nanjing have already been summoned to a meeting with the central government, noted Yan Yuejin, research director at the Shanghai E-House Real Estate Research Institute, adding that homebuyers are likely to face tighter lending conditions and that quotas for loans to property developers could be reduced.

"Top policymakers want to know why home prices have risen faster in [certain] cities and these authorities are expected to tighten controls," said Yan.

While initial restrictions may be imposed by city authorities, the central bank could also step up macroprudential measures to limit the flow of funds into the sector, said Li Yujia, chief research fellow at Guangdong Urban & Rural Planning and Design Institute, advising the Guangdong provincial government on housing policies.

Monetary easing to counter the economic effects of coronavirus has combined with promotions by developers to drive demand in the sector, said Li. While some activity is driven by investment demand, sales of prime properties, particularly in big cities, have also been boosted by buyers keen to upgrade their living conditions following the experience of the anti-virus lockdowns, he said.

RESIDENCE REQUIREMENTS

"More than 20 out of Top 30 cities of selling most land in H1 were from key metropolitan areas," he said. Improved intercity transport links and a relaxation of residence requirements by some cities seeking to attract high-end workers have both boosted demand.

In the prime Yangtze River Delta region, prices of newly built residential houses jumped by 2.72% in H1 from a year earlier, a 1.66 percentage point increase in the rate of growth, according to the China Index Academy. This was more than double the average 1.27% increase for 100 cities throughout the country, a rate which had narrowed 0.18 percentage point from the same period last year.

Property investment rose 1.9% in H1, although home sales by area and value still fell 8.4% and 5.4% versus the same period of 2019 respectively, National Bureau of Statistics data shows. Home sales could be back in positive territory by as early as September, Li said, noting that most potential buyers have ample savings and income, despite some concerns over falling earnings.

But "the most generous monetary easing period had passed", Li said, noting that the Loan Prime Rate – a key lending benchmark – has been unchanged for three months in a row.

Smaller cities which do not tighten regulations could see bubbles emerge, said Kuang Weida, director of the Urban and Real Estate Research Center at the National Academy of Development and Strategy. But, generally tighter regulations will probably keep a lid on house prices for the rest of the year, and in first- and second-tier cities they may continue to rise at a moderate pace, he said.

Some of the concern about the re-emergence of housing bubbles has stemmed from falling rental yields. But the indicator has been distorted by a post-pandemic exodus of migrant workers from big cities, where they are a significant presence in rental markets, according to Yan.