A man walks past a residential complex by Chinese real estate developer Evergrande in Guangzhou, south China’s Guangdong province, on September 17, 2021.
Noel Celis | Afp | Getty Images
Shares in Chinese property developers rallied on Monday after major mainland Chinese cities unveiled easing measures to boost homebuyer sentiment following the central bank’s policy stimulus.
THE Guangzhou City Government said in a statement on Sunday that all restrictions on home purchases would be lifted, effective Monday. Previously, immigrant families were required to pay taxes or social security for at least six months in order to buy up to two houses, while individuals were limited to one apartment.
THE The Shanghai government also declined the required tax period in one year out of three years. The city also lowered the down payment rate for first homes to about 15 percent, and for second homes to about 25 percent, above the national average of 15 percent. The rules take effect Tuesday, according to the announcement late Sunday.
The Shenzhen government also relaxed purchase restrictions – which had limited local families to two houses and individuals to one – allowing buyers to buy one more flat in some areas. Immigrant families with at least two children can now buy two houses, instead of one previously, according to the statement.
After the closing of markets, Beijing Municipal Housing and Urban-Rural Development Committee issued a directive to cut existing mortgage rates and the city’s down payment index closer to levels set by the central bank last week. The down payment ratio for second homes must not be “below 20%,” the city said.
The Hang Seng Mainland Properties Index climbed 7% on Monday, extending last week’s gain of more than 30%.
Shares of property developers listed in Hong Kong such as Longfor Group Holdings, Hang Lung Properties, China Resources Land were some of the biggest movers on the Hang Seng index, posting gains of 12.4%, 12.7% and 2.5% respectively. China Overseas Land & Investments and China Vanke rose 3.5% and 11.7%, giving back some of the gains in the morning session.
Mainland China’s CSI 300 rose 8.5 percent on Monday after the index recorded its best week in nearly 16 years on Friday. The CSI 300 Real Estate index jumped more than 9%.
The easing of purchase restrictions may help lift property sales in first-tier cities – such as Beijing, Shanghai and Guangzhou – by a greater margin than other cities, said Allen Feng, deputy director of Rhodium Group, noting that similar measures have not worked for other cities in the past.
The view is shared by Gary Ng, APAC economist at Natixis, who suggests the effect is more limited in smaller cities “given the increased level of inventories”. They are more likely to lead to some “stabilization” than a reversal, Ng said.
The easing measures follow the central government’s call last week to combat the property slump. Authorities “must work to stop the decline in the property market and stimulate a steady recovery,” according to a CNBC translation of the Chinese reading of the high-level meeting chaired by President Xi Jinping.
The People’s Bank of China also cut interest rates on existing individual mortgages by an average of 0.5 percentage points and cut the average down payment rate for second home purchases to 15% from 25%.
Property once contributed more than a quarter of China’s GDP, but entered a multi-year slump after Beijing cracked down on the sector’s high debt levels in 2020.
Chinese policymakers have increased support to ease the financial burden on households and shore up the troubled real estate sector. But the previous measures did not lead to substantial reversals.
China may “need to step up its efforts to complete stalled or abandoned projects in pre-sold properties” in order to boost confidence among potential home buyers and restore demand, said Erica Tay, director of macroeconomic research at Maybank Investment Banking Group, noting that only 4% of the area under construction this year has been completed.
“Fast-tracking fiscal policies” is crucial, Nomura analysts led by Jizhou Dong said in a note on Sept. 26, and “if introduced soon enough” will act as tailwinds to boost domestic consumption and stabilize real estate sector.
Homebuyer demand will slowly ease and mortgage growth is expected to stop contracting soon, Natixis’ Ng said, “but it will take more time and larger measures to see a sharp overall recovery in the property market.” .
