China to ease curbs on property in light of slowdown: Analysts

China’s slump in property sales and construction is spurring speculation that the government’s four-year-old campaign of real estate controls will start to crack.

Citigroup analysts see “targeted easing” in curbs including home purchase restrictions, while Centaline Group, the parent of China’s biggest real estate brokerage, says some cities are inclined to adjust policies, such as the level of scrutiny on buyers.

Hong Kong-based Societe Generale China economist Yao Wei said: “The housing sector now poses the biggest downside risk to the Chinese economy. The next batch of policy announcements is likely to be housing policy relaxation at the local government level.”

A 25 per cent plunge in new building construction helped drag economic growth in the first three months of this year to 7.4 per cent, down from 7.7 per cent in the previous period and below the 7.5 per cent official target, the National Bureau of Statistics (NBS) said on Wednesday. It was also the slowest growth in six quarters, adding pressure on Premier Li Keqiang to avert a deeper slowdown.

While the government on Wednesday announced more support measures including lower reserve requirements for rural banks, Mr Li reiterated that the nation was not considering stronger stimulus for Asia’s largest economy.

The lower reserve requirements at “qualified” rural banks build on plans announced earlier this month for railway and housing spending and tax breaks for companies to support expansion.

Wednesday’s measures “are small in magnitude in terms of their macroeconomic impact, but send a clear signal of loosening intention,” Goldman Sachs analysts said.

Bank of America analysts estimated that a cut of 1 percentage point in rural lenders’ reserve ratios may release as much as 78 billion yuan (S$15.7 billion) in liquidity.

The value of property sales in the first quarter fell 5.2 per cent from a year earlier and unsold completed properties jumped 23 per cent from a year earlier to 521.6 million sq m (5.6 billion sq ft), the NBS said.

NBS spokesman Sheng Laiyun said that “relevant departments will closely follow the changes in the property market and improve property macro-control policies accordingly”, responding to a question on whether housing market policies would be relaxed.

The property market has had new developments including falling prices in some third- and fourth-tier cities, he added.

UBS analysts estimate that the real estate industry accounts for more than a quarter of final demand in the Chinese economy when property-generated needs for goods such as machinery and instruments, chemicals and metals are included.

“For now, I think the government will hold its breath, but if the sector were to continue to weaken — and I think most forward-looking indicators suggest it will — I would expect the government’s nerve not to hold,” said Mr George Magnus, an independent economic adviser to UBS.

Measures that the government may take include “monetary easing, including possibly further yuan depreciation, and a relaxation of some past restraints on property purchases and transactions”, he added.

Hong Kong-based JPMorgan Chase China economist Grace Ng said while there may be some degree of easing in places where the housing market is under pressure, it is unlikely to evolve into a national policy shift.

Some of the cities that had imposed home purchase restrictions, such as Wenzhou, Xuzhou and Zhoushan, have already been tweaking the measures since the second half of last year to boost sales, Centaline said.

In Beijing, existing home prices fell 3.8 per cent from the March average to 31,265 yuan a square metre in the first 10 days of April, according to data from Bacic & 5i5j Group, the city’s second-biggest property broker.

Hong Kong-based Citigroup China economist Ding Shuang said the government could buy housing inventory to use as low-income apartments.

“Property developers, especially smaller ones, are very vulnerable,” he said. “If they cannot sell their inventory, they may default and the non-performing loan ratio could increase and bond defaults could also increase.”

Source : Today – 18 Apr 2014

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