Easing of restrictions on home purchases has little effect

Loosening of home purchase rules in several Chinese cities has had a limited impact on the fortunes of the real estate sector, as the measures have failed to ensure sustained growth in property sales, amid record oversupply and tight credit conditions, experts said on Tuesday.

According to data provided by China Real Estate Information Corp, 29 of the 46 cities that previously imposed home purchase restrictions have lifted them so far, publicly or quietly. The impact of the policy relaxation was felt in 10 cities, CRIC said, adding that the sales upsurge was limited to the first week. Sales returned to normal levels in the second and third week, it said.

A substantial portion of the initial sales growth was triggered by homebuyers rushing to register their earlier purchases, which became legal under the new policy, CRIC said. Previous property restrictions required non-local residents to have several months of social security payment records to buy a house.

In Jinan, the capital of Shandong province, turnover between July 10 and Aug 10 swelled to 8,069 units after the city officially lifted the restrictions on July 10. That was 2.8 times over the turnover recorded in the earlier month.

CRIC analysts said that nearly half of the recorded deals could be attributed to sign-ups of the earlier transactions, given that the pre-sale permits of these homes were issued before the end of 2013. During the third 10-day period after the policy relaxation, sales returned to normal level, it said.

Many other cities that loosened restrictions also saw similar trends, said CRIC analysts, adding that in some cities the upsurge occurred even before the official policy relaxation was announced.

In late April, Nanning in the Guangxi Zhuang autonomous region led the nation in easing the curbs. In July and early August, a batch of second- and third-tier cities followed one another to ease restrictions as the slack sales showed no sign of easing. Foshan in Guangdong province was the latest, and the first city in the province to loosen controls.

In Chengdu, local analysts said housing sales did not post a strong upswing after the city quietly loosened restrictions in July. However, the makeup of the demand has changed: a year ago, first-time homebuyers made up the majority of the demand. Now tradeup demand has risen to more than half of the demand.

The weak market has prompted Chengdu to roll out more measures like offering subsidies to banks for mortgages for home purchasers. Other cities have also taken measures to lower financial thresholds for buyers.

However, in most cities the mortgage rate has not fallen. A 5 to 10 percent premium on the benchmark interest rate for first-time buyers, 10 to 20 percent premium for second home buyers is commonplace, said CRIC. Yang Kewei, an analyst with CRIC, said that with such measures in place, there is little room for price appreciation in the future.

Zhao Qiang, chief analyst for the real estate sector at China Galaxy Securities, said as fund costs for banks have risen, most banks have no incentive to issue mortgage loans with a rate of 6 to 7 percent.