Chinese Cities Roll Back Real Estate Curbs as Cracks Appear

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Several sizeable Chinese cities have in the last few days backtracked on the tough restrictions on property purchases that have been put in place across the country. Their response comes as cracks start to appear in China's home market that threaten the country's overall rate of growth.
 
There has been a flurry of activity over the last week, as local-level politicians react to the sluggish markets. In that period, four cities have relaxed home-buying restrictions or rolled out policies that support home purchases. More cities are likely to follow suit this month.
 
That's bold action in the face of pressure from Beijing to curb run-away home prices and rampant speculation. The first attempts to ease up on home-purchase restrictions just over two years ago saw the local officials (in the towns of Foshan and Wuhu) immediately go back on their word within a day or two, squeezed by central policymakers.
 
There's been no such pressure this time. "The question is no longer 'if' or 'when' but rather 'how much' China's property market will correct," a team of Nomura analysts led by Zhiwei Zhang said in a May 5 report, noting that the process has now started.
 
The volume of home purchases is dropping rapidly, and land sales are down. That shows that developers have become increasingly cautious at a time that banks have made it very difficult for them to borrow. Even home prices, which for so long seemed only to rise, are starting to fall.
 
The action at a local level is not enough, according to Nomura, which expects more policy easing later this month, as projects anger existing buyers by cutting prices. Local governments in China get much of their revenue from housing and land sales.
 
Without the central government easing up on lending, declining investment in real estate threatens to knock a full percentage point off the entire gross domestic product of the world's second-largest economy, Zhang's team forecasts. Without easier money in the system, they expect 2013's growth rate of 7.7 percent will drop 6.7 percent in 2014.
 
This week has seen a patchwork of local-level easing in a bid to shore up depressed markets.
 
The Yangtze River port of Tongling in Anhui Province near Shanghai on Monday introduced a tax subsidy for first-time buyers. It also reduced downpayments to 20 percent, from 30 percent, as well as streamlining property buying bureaucracy.
 
The same day, an official in nearby Ningbo, a port city just south of Shanghai across Hangzhou Bay, said the city would relax home-purchase restrictions by treating anybody who does not have another property in any one district of the city as as a "first-time buyer" in that district - even if they own homes elsewhere in the city.
 
At the end of April, an official in Tianjin, the sprawling port city that serves Beijing, started allowing buyers of price-capped homes to put down only 10 percent and get a 70 percent mortgage, with the developer holding the remaining 20 percent of the property, a stake the buyer can buy back later. It also said anyone can buy in the Binhai district as long as they don't already own a home there, no matter how many other properties they own elsewhere.
 
Nanning, in China's very south near the Vietnam border, announced that it would start counting the residents of five neighboring cities as "local" in terms of home buying. Their residents had been treated as non-locals. Most large cities require people to live in the city for as much as three years before they can buy a home.
 
Together with Hangzhou and Wuxi, that brings the total of cities that have freed up home-purchase restrictions since late April to six - and others may be doing it on the sly. One developer said at the time that it was silly for Nanning to make its plans public since "other local governments will likely implement under the table."
 
Hangzhou, famed as a day trip from Shanghai for its West Lake, started giving any citizen that is made to relocate cash and subsidies to buy a new home, instead of simply arranging a substitute property.
 
Wuxi, another city just outside Shanghai, has gone the furthest in its bid to revitalize the local home market - it has started giving resident status to non-local workers who buy homes of at least 60 square meters (645 square feet), regardless of how long they have lived in the city.
 
Three more cities - Wenzhou, Wuhu and Xuzhou - eased their own restrictions at the end of last year, as it started to become clear that this would be a difficult year.
 
It appears to be getting tougher as it goes on - new-home starts plunged a record 25 percent in the first three months of the year, and property sales fell 5 percent. Prices across the country dipped 0.5 percent in March, the first declines in two years, and are falling in around a quarter of China's largest cities.
 
Some very large, Hong Kong-listed developers are posting big drops in sales in 2014, with luxury home specialists China Overseas Land & Investment down 26 percent in the first three months of the year. CR Land's sales fell 43 percent, and Vanke, the largest developer in the country, saw a 5 percent decline.