Chinese cities prop up housing market by easing policies on presales, subsidies and mortgages

·4-min read

Embattled Chinese property developers can heave a sigh of relief as authorities at the city, provincial and central government level take steps to ease policies to boost the flagging housing market.

Housing authorities in Yiwu in the eastern province of Zhejiang said last week that developers can restart presale activity as soon as they launch a residential project, reversing their decision in August, when developers had to apply for presale permits in tranches once every three months.

The regulator also said that developers only have to launch lucky draws when there is more than one buyer vying for each unit, simplifying the sales process. Two months ago, a lucky draw was a prerequisite for every project.

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Yiwu’s about-turn on the real estate market came after top officials, from Vice-Premier Liu He to People’s Bank of China Governor Yi Gang, underscored the importance of a healthy property sector and pledged to support the stable development with consistent industry policies.

People’s Bank of China Governor Yi Gang said efforts must be undertaken to ensure the stable and healthy growth of the property market and protect consumer interest. Photo: EPA-EFE
People’s Bank of China Governor Yi Gang said efforts must be undertaken to ensure the stable and healthy growth of the property market and protect consumer interest. Photo: EPA-EFE

Liu said at a financial forum in Beijing last Wednesday that reasonable capital needs of the property sector will be met to promote the healthy development of the property market.

Earlier on September 30, the PBOC and the China Banking and Insurance Regulatory Commission (CBIRC) convened a meeting with officials from the Ministry of Housing and Urban-Rural Development, the China Securities Regulatory Commission and 24 major banks to discuss financial policies for the property sector.

PBOC chief Yi said financial institutions and local governments should make joint efforts to ensure the stable and healthy growth of the property market and protect consumer interest.

“The worst is over, and we will see more relaxed policies ahead,” said Danielle Wang, a China property analyst at DBS Vickers. “Otherwise, we could see a vicious circle following the Evergrande saga, impacting the sector and even the economy.”

The escalating crisis at top developers like China Evergrande Group, Sichuan Languang Development, Fantasia Holdings and Modern Land (China), who have either missed or defaulted on bond payments, has hit investor confidence in China’s property market.

The nation’s home builders have been rattled ever since China stepped up its scrutiny on developers with its “three red lines” leverage targets in August last year, barring heavily indebted companies from borrowing money.

Banks tightened up mortgage practices after the central government called on financial institutions to lower their exposure to the property sector. This has led to delays in loan approvals of as long as 108 days in some cities and mortgage rates to go up to as much as 6.9 per cent in some cities like Huizhou, in southern Guangdong province.

The increasing mortgage costs led to a plunge in home transactions, as presales across China declined 36 per cent year on year in September, according to DBS Vickers. As a result, money from selling homes, the main source of funds for some industry delinquents, has dried up.

“The tightened mortgage rules have affected the basic operation of the developers who rely on presales, further pushing more developers who cannot borrow much money to the edge of a liquidity crunch,” said Yan Yuejin, director of Shanghai-based E-House China Research and Development Institute. “This is not what the government would like to see, and this area must be relaxed.”

The authorities, however, have started recalibrating macro policies to cushion the impact of slowing activity.

At a press conference on October 15, senior PBOC officials highlighted that some financial institutions had overreacted to the developers’ deleveraging campaign and expected mortgage rates to return to normal after housing prices stabilised.

Last Thursday, CBIRC urged banks to support first-time homebuyers in terms of down-payment ratio and mortgage rates.

Harbin, in northeastern Heilongjiang province, is providing subsidies of up to 100,000 yuan (US$15,497) for homebuyers under the age of 35. It also said it would encourage developers with good credit profiles to resume presale activity sooner than allowed earlier.

In south-central province of Hunan, buyers can apply for as much as 2.4 million yuan from the housing provident fund, as of last week.

“We expect more cities to join the chorus of lifting the tight policies,” said DBS’ Wang. “If we see some 20 cities do so, the confidence will be rebuilt.”

Meanwhile, market observers said that China’s decision to set up a property tax pilot programme will not immediately affect the market, as they expect it to be only used as a long-term mechanism tool.

“It looks like it will take at least five years for nationwide implementation of the property tax,” said Raymond Cheng, property analyst at CGS-CIMB Securities. “Overall, given continued policy loosening ahead, we think China’s property sector will outperform.”

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