Housing policy in China: from restrictive to accommodative

March 25, 2015 / By  

The past several weeks have seen a slew of negative headlines regarding China’s housing market, touching on issues like continuing sluggish sales, further price declines and the emergence of more neighbourhoods so empty some call them ‘ghost towns’. As a result, many have been predicting a market crash in the near term.

Despite the weak sentiment prevailing among homebuyers and the media, we believe China’s housing market is stabilising. As part of our quarterly data collection, my colleagues have visited sales offices across 20 Chinese cities over the past two weeks. Their feedback confirms that housing prices are now declining at a much slower pace than last year in most Tier 2 cities, while the Tier 1 cities have begun to see prices creep up. The price index published by CREIS, illustrated in the chart below, shows the same trend.

China housing price changes


Source: CREIS, JLL

Most developers believe that current weak sales are due to seasonal effects rather than a contraction in demand, and remain optimistic about sales for the remainder of the year, as the government’s policy stance will continue to be accommodative. At the National People’s Congress (NPC) in early March, Premier Li changed the tone of the government’s property market policy stance from “restrictive” in 2014 to “accommodative” this year. Over the past several days, we have begun to see more relaxed policies rolled out to support end users. Last Friday, the Ministry of Housing urged local governments to increase support to homebuyers through the housing provident fund (HPF), which provides mortgages to homebuyers with subsidised rates. This was followed by news on Monday that Shanghai was considering raising the borrowing limit of the HPF from RMB400,000 per person to RMB700,000 per person. Meanwhile, Fujian Province announced that upgraders would enjoy the same preferential treatment on down payments and mortgage rates as first-time homebuyers.

The government has plenty of policy tools to restore market confidence and revive sales, while keeping housing prices in check. The next few weeks will be a critical period for policymakers. We believe if property sales remain subdued, we are very likely to see the rollout of more supportive measures, which could include lower down payments, higher discounts on mortgage rates or deductions in transaction taxes. However, developers should not rest their hopes on policy loosening alone. After all, their inventories are high while supply pipelines are large. For a meaningful recovery of sales, developers are likely to take a pro-active approach by offering incentives to lure buyers back to the market. For this reason, we believe housing prices will continue to trend downward in many Tier 2 and 3 cities over the remainder of the year. However, for the Tier 1 cities, we believe there is little risk of a further price correction due to their strong market fundamentals.

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