Funds flee to third- and fourth-tier cities, as well as stocks
More than 20 cities announced new home buying restrictions at the end of last month, as the central government tries to cool the soaring real estate market. Recently, residential housing prices started to rise rapidly in some third- and fourth-tier cities, partly due to speculative housing purchases. But experts warned that policies should tailored to each city.
Since September 30, more than 20 cities, including first-tier cities like Beijing and Shenzhen, South China's Guangdong Province, and smaller cities like Wuxi and Suzhou, East China's Jiangsu Province, have announced new restrictions on property purchases, as the central government tries to cool the soaring property market.
In a G20 meeting in Washington on Thursday, Zhou Xiaochuan, the governor of the People's Bank of China (PBOC), said that China is paying close attention to rising property prices in some cities and "will take measures to promote the sound development of the real estate market," according to a statement posted Saturday on the PBOC website.
The Beijing municipal government raised the minimum down payment for first-time home buyers to 35 percent from 30 percent. In Shanghai, the city launched strict property rules on the unmarried. Singles without a household registration in Shanghai will not allowed to purchase a house in the municipality.
On Saturday, Nanchang, capital of East China's Jiangxi Province, launched new restrictions on the number of new homes that people can buy in some districts, and raised the minimum down payment for first-time buyers to 30 percent from 20 percent.
Trade volume falls
"After the new policies, the trade volume of residential houses in first- and second-tier cities will decline during the short term," Jiang Yining, an analyst from Capital Securities in Shanghai, told the Global Times on Monday.
"Some home buyers are predicted to delay or cancel plans to purchase larger houses due to the increased down-payment requirements," an ex-owner of a Shanghai-based real estate agent, who declined to be named, told the Global Times on Monday.
In Wuxi, 167 residential houses were traded on October 2, according to a report Monday by National Business Daily.
Three days later, after the city enacted tighter housing market rules, only 28 houses were traded, the report said.
Some cities have already seen an impact on housing prices.
In Suzhou, the average home transaction price was 16,298 yuan ($2,430.54) per square meter between October 4 to Sunday, about a thousand yuan less than in September, according to a statement posted Monday on the Suzhou local government's website. The city launched new policies October 3.
"The government aims to maintain a stable housing market. The housing prices in the first- and second-tier cities will not decline dramatically in the short term," Jiang said.
Opportunities or risks?
"When housing speculators have no opportunities in the first- and second-tier cities, they might move to the third- or fourth-tier cities to seek more chances," Xue Jianxiong, president of asset management firm UTC, told the Global Times on Sunday.
Actually some smaller cities have seen heated property markets since August. "More than 400 residential houses developed by our company were sold in September, much higher than the monthly average level of 50 houses in the previous year," a person in charge of the real estate projects in Wuhu, in East China's Anhui Province, for Beijing-based Macrolink Group, told the Global Times on Monday. He requested anonymity.
Wuhu is a third-tier city in Anhui, only 150 kilometers from Hefei, capital of the province. The average price of new residential houses in Wuhu increased around 5 percent in September month-on-month, according to a report released by the China Index Academy in October.
In August, 70 major cities saw their new home prices rise by 1.26 percent on average from July, jumping from a monthly increase in July of 0.72 percent.
New home prices in first-tier cities including Shanghai, Shenzhen and Beijing rose 37.8 percent, 37.3 percent and 25.8 percent, respectively, year-on-year in August, while prices in smaller cities like Hefei and Xiamen, East China's Fujian Province, increased 40.5 percent and 44.3 percent year-on-year, according to data from China's National Bureau of Statistics.
The manager from Macrolink Group said that the price grows too fast in Wuhu. There are indeed some speculators entering the housing market, he said, adding that third-tier cities with convenient transportation and a comfortable living environment have great potential to attract consumers.
The average price of the housing projects launched by the Macrolink Group in Wuhu is around 7,000 yuan per square meter, compared with 5,000 yuan in 2014, he noted.
Wuhu is only one representative of third- and fourth-tier cities.
"Good market is beneficial for the smaller cities to digest large amounts of stocks, which is helpful to boost the local economy," said Xue, the expert.
But meanwhile, some smaller cities in underdeveloped areas are finding it very difficult to attract consumers, said Xue, noting that effects of the restrictive policies are different in each city.
"As property developers, we don't want the speculators to disturb the market actually, and we hope a stable market for a long term," said the person from the Macrolink Group. He also voiced concerns that stricter policies might lead to the next round of housing-price spikes or a depressed market for a while.
After the launch of the homebuying restrictions, some investors are expecting funds might flow into stock markets. However, both analysts Xue and Jiang were not so optimistic.
"It depends on whether the stock markets have supportive policies to attract more funds," said Xue, noting that many investors will be cautious in entering the stock market.
"Currently, there are no clear evidence indicating funds are flowing into the stock markets," noted Jiang. "Also, China still has regulations to prevent large amounts of fund flowing out of the country."
