MNI: Further Easing To Boost Property After China’s 3rd Plenum

China’s Third Plenum reforms granting municipalities full autonomy over their housing markets will stimulate property demand, as remaining first-tier cities loosen restrictions, but further monetary easing will be needed to boost sales, advisors and analysts told MNI.

Guangzhou, Tianjin and Hainan are expected to remove buyer limits on the number of owned properties, said Chen Wenjing, deputy director of research at China Index Academy, adding Beijing, Shanghai and Shenzhen may follow, but after some time and progressively.

These six regions represent the last jurisdictions to impose limits on ownership nationwide, Chen noted.

Xie Yifeng, dean at the China Urban Real Estate Research Institute and a housing ministry consultant, said plenum reforms would prompt cities to reduce the so-called mansion tax on units above 144 square metres given previous housing classifications can now be abolished. “This will greatly boost demand for upgrades given such housing accounted for 30-40% of stock nationwide,” Xie continued.

Additionally, first-tier cities are expected to eliminate further restrictions on larger home sales, lower the social-security threshold and cut taxes, he added, emphasising the need for progressive easing as the attractiveness of top cities could syphon demand from surrounding markets.

“Local authorities may ease gradually but accelerate should the market remain down even during the peak September-October season,” Xie said. He also expects 100% deed-tax cuts and stamp-duty exemptions for first-time buyers, and 50% for second-time purchasers.

However, continuous policy support had proven unsustainable in buoying sales, with the PBOC’s recent 10 basis point cut to the five-year plus Loan Prime Rate to 3.85% – used by lenders to benchmark mortgages – insufficient to boost demand, Xie noted. Room existed for a further 70-90bp cut, he argued. (See MNI EM: Big Price Cuts Needed To Lure China Homebuyers-Advisors)

Recent measures, such as Beijing’s mid-May support package, had weakened into July with transactions falling sharply in the first half of the month, said Li Yujia, chief research fellow at the Guangdong Urban & Rural Planning and Design Institute.

MIGRANT DEMAND

Xie anticipated 200 million rural to urban migrant workers would drive first-time buyer demand over the next decade, lifting the urbanisation rate to 75% from 66%.

Plenum proposals would aid migrant demand for affordable housing by making access to public services determined by residential location, not Hukou registration – a previous obstacle. (See MNI INTERVIEW: China Moves On Population Decline-PBOC Advisor)

However, this also meant significant investment is needed to increase China’s affordable housing, which accounted for less than 10% of total stock versus Singapore’s over 70%, Xie said.

The central bank could expand its CNY300 billion re-lending facility to fund bank loans for housing stock acquisition into a CNY1-2 trillion fund, to develop quickly an affordable housing system, Xie suggested.

Additional favourable fundamentals such as urban renewal and changing demographics will help mitigate downward structural adjustment over the long run, Xie added.