Hom­ing in on a so­lu­tion

More cities have eased or lifted curbs on hous­ing pur­chases, but so far those moves aren’t prop­ping up the slack mar­ket, re­ports Zheng Yangpeng.

China Daily (Canada) - - BUSINESS -

Weak­ness in the prop­erty mar­ket is prompt­ing most cities to ease pur­chase re­stric­tions and other curbs. But with neg­a­tive sen­ti­ment among buy­ers so strong, an­a­lysts warned that lo­cal gov­ern­ments’ moves will not help much — and might even back­fire.

As of Wed­nes­day, of the 46 cities that had im­posed pur­chase curbs, 36 cities had pub­licly or qui­etly re­laxed them, ac­cord­ing to the 21st Cen­tury Busi­nessHer­ald. The re­main­ing lo­cal­i­ties that are keep­ing a grip on the mar­ket in­clude first-tier cities such as Bei­jing and Shang­hai.

The re­stric­tions were im­posed af­ter prices surged in 2010. The curbs in­cluded bans on pur­chases of mul­ti­ple homes and/or tougher mort­gage con­di­tions. These poli­cies have gone some way to curb the ex­ces­sive spec­u­la­tion that caused the price surges.

Since the curbs were im­posed, ev­ery dip in the mar­ket has prompted calls for eas­ing. But only in the past few months has that ac­tu­ally hap­pened.

“In May, any city that loos­ened its re­stric­tions made the head­lines. Now, peo­ple have be­come used to eas­ing by one city af­ter another,” said Yan Yue­jin, an an­a­lyst with Shang­hai-based E-house China R&D In­sti­tute.

A del­i­cate dy­namic pre­vails among the cen­tral govern­ment, lo­cal gov­ern­ments and hous­ing de­vel­op­ers in terms of re­lax­ing the re­stric­tions. Ini­tially, the cen­tral govern­ment took a tough stance, fear­ing any re­treat would reignite spec­u­la­tion.

De­vel­op­ers and lo­cal gov­ern­ments, the lat­ter get­ting the bulk of their rev­enue from land sales and re­lated trans­ac­tions, nat­u­rally fa­vored a looser stance.

But af­ter look­ing at the first-half fig­ures, the cen­tral govern­ment re­lented. The value of hous­ing sales in the first half of the year fell 9.2 per­cent, fol­low­ing a full-year in­crease of 26.6 per­cent in 2013. So far, the na­tional au­thor­i­ties have not blocked any re­lax­ation move by a lo­cal govern­ment.

Mar­ket par­tic­i­pants are even spec­u­lat­ing about whether Bei­jing and Shang­hai, once “un­touch­able”, would undo the shack­les. The spec­u­la­tion is not ground­less. First-tier cities have not been im­mune to the woes of their smaller coun­ter­parts. Shang­hai’s new home turnover in July, for ex­am­ple, de­clined 13.1 per­cent from June. China In­ter­na­tional Cap­i­tal Corp Ltd, a State-owned in­vest­ment bank, said in a re­port that all four large Sta­te­owned banks in Shang­hai are of­fer­ing dis­counts on mort­gages.

Not every­one, how­ever, is in­spired by these de­vel­op­ments.

Fitch Rat­ings Inc warned on Thurs­day that the eas­ing of hous­ing curbs could prompt re­newed spec­u­la­tion in­volv­ing res­i­den­tial prop­erty. It added that “another chance for the pos­i­tive re­struc­tur­ing of the home­build­ing sec­tor in the long term” may be missed.

Fitch’s view is shared by many other fi­nan­cial in­sti­tu­tions: that the lat­est round of eas­ing could fail to re­vive sales, given the pre­vail­ing neg­a­tive sen­ti­ment among po­ten­tial buy­ers, while it could set off a newround of spec­u­la­tion un­less other steps are taken to pre­vent that.

“Fitch also be­lieves the re­cent eas­ing poli­cies­may ex­tend the life of un­com­pet­i­tive home­builders, which­may de­lay and set back the progress seen in the first half of 2014 in re­struc­tur­ing and con­sol­i­dat­ing China’s home­build­ing sec­tor,” the re­port said.

In May, Fitch noted that less-com­pet­i­tive de­vel­op­ers were be­ing forced out of the mar­ket or into merg­ers with stronger ones, a trend that it said would limit the risk of over­sup­ply and im­prove the longterm health of the sec­tor.

“Of course, gov­ern­ments could reim­pose the re­stric­tions if spec­u­la­tion rises again, but that would re­quire­much­more ne­go­ti­a­tion be­tween the lo­cal and cen­tral gov­ern­ments,” said Andy Chang, as­so­ciate direc­tor at Fitch (Hong Kong) Ltd.

Com­pared with the loos­en­ing of curbs, Fitch and many other in­sti­tu­tions have said that mone­tary eas­ing will be much more ef­fi­cient in re­vers­ing the down­turn.

Tight credit con­di­tions are widely be­lieved to have been a chief rea­son for the prop­erty mar­ket down­turn that started in late 2013, as buy­ers found it much more dif­fi­cult to get bank loans and de­vel­op­ers strug­gled to raise the cash to ac­quire land and un­der­take con­struc­tion.

A prime ex­am­ple of the im­por­tance of credit came in May, when an of­fi­cial of the cen­tral bank urged ma­jor lenders to ac­cel­er­ate mort­gage ap­provals for first­time home­buy­ers. Banks have been re­luc­tant to ex­pand their mort­gage busi­ness be­cause of the thin profit mar­gins.

The sit­u­a­tion changed a bit af­ter the govern­ment in­jected more liq­uid­ity into the mar­ket in re­sponse to slug­gish growth in the broad econ­omy. China’s broad­est mea­sure of new credit rose in June to the high­est level for that month since 2009.

A study by E-house found that a nar­row mea­sure of money sup­ply (M1) is a lead­ing in­di­ca­tor of hous­ing price changes. Pre­vi­ous cy­cles showed that M1 led home price changes by about five months.

Thus, the ac­cel­er­ated growth ofM1(an 8.9 per­cent up­surge in June from a record low of 1.2 per­cent in Jan­uary) in­di­cated that down­ward pres­sure on home prices may have eased.

Lo­cal gov­ern­ments have also moved to im­prove credit con­di­tions. Chengdu in Sichuan province, Shaox­ing in Zhe­jiang province and Bao­tou in the In­ner Mon­go­lia au­tonomous re­gion have promised to of­fer sub­si­dies to banks for mort­gages for home pur­chasers.

Chang said that as liq­uid­ity con­tin­ues to im­prove, banks will feel pres­sure to lend­moreto the prop­erty sec­tor so as not to let their funds lie idle. Con­tact the writer at zhengyang­peng@chi­nadaily.com.cn

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