MNI: China's Major Cities To Ease Home Sale Rules Further

More first-tier cities in China are expected to follow Beijing’s unexpected easing of homebuying restrictions in "non-core" areas ahead of the traditional September-October sales peak, a move that could curb recent declines in prices and transactions, advisors and analysts told MNI.

Shanghai and Shenzhen could follow Beijing’s move last Friday to lift ownership caps on properties outside its fifth ring road, said Xie Yifeng, dean of the China Urban Real Estate Research Institute, adding that loan support via the personal housing provident fund is also expected to expand. “The capital city’s move was unexpected and sends a strong signal, as Beijing has traditionally been the last to act in previous rounds of policy easing,” Xie added.

The change is likely to boost sales significantly over the coming months, Xie said, noting that more than 80% of new homes sold in Beijing in the first seven months were outside the fifth ring road. However, the outlying areas face considerable inventory pressure, with a destocking cycle exceeding 10 months, or even 18 months in some places, Xie cautioned. 

Li Yujia, chief research fellow at the Guangdong Urban & Rural Planning and Design Institute, said further policy easing was needed to counter expectations of a second downturn in H2, after the market corrected by more than anticipated in the first half. New home transactions in first-tier cities fell around 20% y/y in July, Li noted, a drop that could not be explained by seasonal factors alone.

Beijing home sales in the first week of August totalled 90,000 sqm, down from 130,000-300,000 in each of the previous four weeks and 45% lower than the prior week, while sales in Shanghai, Guangzhou and Shenzhen fell 33%, 23% and 2% respectively, Huaxi Securities data showed.

Li noted a rising number of second-hand listings and broader price declines for both existing and new homes as owners and developers accept lower offers to secure faster sales.

New home prices in first-tier cities fell 0.3% m/m in June after a 0.2% drop in May, National Bureau of Statistics data showed.

LOAN SUPPORT

Beijing has sought to boost purchasing power by allowing buyers greater access to the housing provident fund, a mandatory scheme in which employees and employers contribute monthly to a pooled account offering mortgages below commercial bank rates. By relaxing the standards, more potential buyers can now be recognised as first-time buyers and enjoy a 20% down-payment ratio and a 2.6% loan rate, compared with 30% and 3.075% for second-home purchases.

According to Chen Wenjing, director of policy research at the China Index Academy, this change could reduce total interest payments by about CNY182,000 on a CNY2 million loan over a 30-year term.

The city has also increased the maximum housing provident fund loan for second-home purchases to CNY1 million from CNY600,000, providing stronger support for buyers seeking to upgrade, Li said. These adjustments are likely to have a significant impact, given the broad coverage of the provident fund in Beijing, which has a large concentration of government and state-owned enterprise employees, he added.

Xie said further measures could include a reserve requirement ratio or interest rate cut by the central bank, tax and fee reductions on transactions, and more purchases of unsold homes and vacant land by local governments. But he noted the near-term likelihood of deploying central government funds for such acquisitions remains low despite repeated calls from advisors and economists. (See MNI: China Likely To Lower Homebuying Down-payment Ratios)