Policy easing unlikely to reverse housing slump

The loosening of property curbs and the easing of monetary policies in China may unintentionally increase speculation on residential property, which will undermine the restructuring needed to keep the sector healthy, Fitch Ratings said at a media briefing on Thursday.

"Relaxing home purchase restrictions will not boost the real estate market but rather prolong the restructuring process," said Andy Chang, associate director of Fitch Hong Kong Ltd.

Scrapping limits may lead to some small short-term rebound, but will not reverse the overall downward trend, Chang said, noting further relaxation may pose risks of encouraging and reigniting speculation on residential property for capital gains, as China experienced in 2009.

China's once red-hot residential property market has lost steam since early this year as prices went far -beyond the affordability of local residents.

Not only smaller cities suffered from a slackening property demand but major cities including Beijing, Shanghai and Guangzhou also witnessed a slump in transactions and home prices.

The average new home price in 100 major cities was 10,835 yuan ($1,762) per square meter in July, down 0.81 percent from June, falling for three months in a row, according to the China Index Academy (CIA), a consultancy affiliated with China's largest online property firm SouFun.

Seventy-six out of the 100 cities saw a month-on-month fall in new home prices in July, -including tier-one cities, five more than the previous month, the CIA data showed.

The slump in the housing market led to a drop in property-related taxes as well as land sales which are major sources of local government revenues.

Land sales revenues in 40 tier-one and smaller cities totaled 105.4 billion yuan in July, down 46 percent year-on-year, according to data from the Centaline China Property Research Center.

Land plot transactions in top 10 cities reached 18.65 million square meters in July, down 29.6 percent from June and almost 30 percent from a year earlier, figures from the E-House China R&D Institute showed.

So far, more than half of the 46 cities implementing the property curbs have reportedly loosened the controls on second home purchase and opened door to non-local residents in order to spur home sales.

Despite a policy easing on purchase curbs, banks remain cautious in granting loans to homebuyers and property developers due to rising concern about bad debts.

"We have not seen an apparent sign of relaxing mortgage conditions for homebuyers," Xu Jin, an analyst at rong360.com, an online loan service provider, told the Global Times on Thursday.

Recently several banks have filed lawsuits against individual homebuyers who stopped to pay home mortgages amid a housing downturn in East China's Hangzhou and Wuxi, the 21st Century Business Herald reported on Thursday.

Xu believes few smaller cities will see a housing market rebound -following the easing of the controls, due to high inventory of homes and weak demand as a result of people moving to bigger cities.

Following the relaxation on purchase limits, housing transactions improved in downtown Hangzhou while those in outlying districts like Xiaoshan remained sluggish, Hangzhou-based Qianjiang Evening News reported on Thursday.

Sluggish sales will weigh heavily on the cash flow of developers, who nowadays tend to rely on overseas lending or bond sales for funding due to tightening credit in China, according to Fitch Ratings' Chang.

Chang is not over-pessimistic on China's housing market though, as the sector is expected to get support from the country's ongoing urbanization and residents' need for better living conditions.

The country's current urbanization rate, which stood at 53.7 percent at the end of 2013 compared with 70 to 80 percent of developed countries, still has room to grow, analysts said.

With the aggregation of population, providing more affordable housing in urban areas remains the top priority for the Chinese government, according to Chang.