MNI EXCLUSIVE: China Stops Regions Loosening Property Rules

By Wanxia Lin

     BEIJING (MNI) - Some Chinese local authorities are trying to relax controls

aimed at limiting property market speculation in a bid to revive their economies

and revenue flows, but the central government is resisting for now as the pace

of decline in pandemic-hit real estate sales eases, advisors told MNI.

     More than 10 mainly third- and fourth-tier cities, including Zhumadian and

Jingzhou, have tried to lower payment ratios or lift limits on house purchases

over the past two months, but their moves were immediately overruled by the

central government, in some cases within a single day, advisors said.

     Any relaxation of rules is unlikely for now, as the property market's deep

dive slows, said Qin Hong, a former director of the Policy Research Center at

the Ministry of Housing and Urban-Rural Development.

     The rate of decline in real estate sales slowed to 26.3% y/y in Jan-March,

from -39.9% in the first two months of the year. But the supply side is

recovering much more quickly than demand, as major real estate developers, whose

borrowing quotas have been removed this year, aggressively seek land and homes

construction recovers from the epidemic, said Qin, now the director of the Urban

Renewal Research Center at the National Academy of Development and Strategy

(NADS). Local governments are also accelerating land sales to boost revenue, she

said, noting that provinces have been allowed to approve the conversion of basic

farmland into construction sites since March.

     Land purchase fees rose 8.5% y/y in March, as property investment grew

1.1%, recovering from the 16.3% drop in the first two months.

     --APPETITE FOR LAND

     Large developers betting on long-term growth still have a substantial

appetite for good land, especially in first- and second-tier cities, said Zou

Yunhan, deputy researcher at the Economic Forecasting Department of the State

Information Center.

     If this disparity in trends between supply and demand continues,

developers' inventories might build, Qin said. Other than in a few cities, house

prices will not rise and could even decline, she said, adding that more than

half of developers are offering discounts.

     But Zou said any easing of demand-side property rules implemented over the

past few years is unlikely, given the speed with which the economy is recovering

from its 6.8% Q1 Covid-19-driven contraction.

     Many of the houses which are selling now are also in higher price brackets,

as the wider population's income is pressured by epidemic disruption and

unemployment rises, Qin noted.

     --OVERDUE PAYMENTS

     Overdue mortgage payments rose in March, reaching 0.6% at retail banking

leader China Merchants Bank, up 0.27 percentage points from end-2019. Overdue

credit card and consumer loan payments also increased, by 1.4 and 0.52

percentage points, to 4.13% and 2.02% by end-March.

     Large-scale defaults are unlikely, given high saving rates among Chinese,

said Zou. But Kuang Weida, director of the Urban and Real Estate Research Center

at the NADS, said mortgage rates might have to be cut by one to two percentage

points for low-income families in areas severely impacted by the epidemic.

Repayment periods might need to be extended for one to two years, he said.

     PBOC moves to reduce companies' medium- and long-term borrowing costs by

guiding the five-year Loan Prime Rate lower will feed through into cheaper

mortgages, both Zou and Kuang said. But further LPR reductions will be moderate,

amounting to savings of only a few hundred yuan a month for many mortgage

borrowers, according to Zou, who was less optimistic than some market analysis

suggesting a significant stimulus effect for housing.

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

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

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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