Shares of Chinese property developers surged on Monday, following the announcement from several major cities in mainland China that they would ease restrictions on home purchases. This move aims to bolster homebuyer sentiment and comes in the wake of recent monetary policy stimulus from the central bank.
Easing of Home Purchase Restrictions
The Guangzhou city government issued a notice on Sunday, declaring the removal of all home purchase restrictions effective immediately. Previously, migrant families were required to pay taxes or social insurance for at least six months to qualify for purchasing up to two homes. Single individuals were restricted to buying only one apartment.
Similarly, the Shanghai government announced a reduction in the tax-paying period from three years to one year. Additionally, the down-payment ratio for first-time homebuyers was lowered to around 15%, while for second homes, it was set at approximately 25%, which is still above the national average of 15%. These new rules will take effect starting Tuesday.
In Shenzhen, purchasing restrictions were also relaxed. Local families were previously capped at owning two homes, while single individuals could only purchase one. The new regulations allow buyers in specific districts to acquire one additional apartment, and migrant families with at least two children can now buy two homes instead of one.
Market Reaction
The Hang Seng Mainland Properties Index surged by 7% on Monday, extending a remarkable gain of over 30% from the previous week. Hong Kong-listed shares of prominent real estate developers saw substantial gains: Longfor Group Holdings climbed 12.4%, Hang Lung Properties rose by 12.7%, and China Resources Land increased by 2.5%. Other notable performers included China Overseas Land & Investment and China Vanke, which rose by 3.5% and 11.7%, respectively.
The mainland China’s CSI 300 index soared by 8.5% on the same day, following its best week in nearly 16 years. The CSI 300 Real Estate index also experienced a significant jump, increasing by over 9%.
Expert Insights
Experts believe that easing purchase restrictions could have a more pronounced impact on property sales in first-tier cities, such as Beijing, Shanghai, and Guangzhou, compared to smaller cities. Allen Feng, an associate director at Rhodium Group, noted that similar measures had previously failed to revive the market in other cities.
Gary Ng, an economist at Natixis, echoed this sentiment, suggesting that the effects in smaller cities may be limited due to high inventory levels. He anticipated that these measures would likely lead to stabilization rather than a complete turnaround in those areas.
The recent easing of restrictions follows the central government’s call to address the ongoing property slump. At a high-level meeting chaired by President Xi Jinping, authorities emphasized the need to halt the decline in the real estate market and foster a stable recovery.
Monetary Policy Support
The People’s Bank of China (PBoC) has also played a role in this recovery effort by reducing interest rates on existing individual mortgages by an average of 0.5 percentage points. Furthermore, the PBoC lowered the average down-payment ratio for second home purchases from 25% to 15%.
Real estate has historically accounted for more than a quarter of China’s GDP, but it has faced a prolonged downturn since the government’s crackdown on high debt levels in the sector in 2020.
To rebuild confidence among potential homebuyers and revive demand, experts suggest that China may need to accelerate the completion of stalled or abandoned construction projects for pre-sold properties. Erica Tay, director of macro research at Maybank Investment Banking Group, highlighted that only 4% of the floor space under construction this year has been completed.
Future Prospects
Analysts from Nomura emphasized the importance of prompt fiscal policies, stating that timely measures could serve as tailwinds for domestic consumption and stabilization of the property sector. While there are signs that homebuyer demand may gradually bottom out and mortgage loan growth is set to stop contracting soon, Natixis’ Ng warned that a substantial rebound in the property market will likely require larger-scale interventions.
Overall, while recent measures have spurred optimism among property developers and investors, a sustainable recovery may depend on ongoing policy support and the successful execution of construction projects.
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