"In key cities, homes are no longer a means to park investments for value appreciation. They are now bought by those who really need a place to live. We need to change our strategies accordingly," said Ma Chengpeng, 32, a sales manger with Hengyu Real Estate Agency.
In the Government Work Report delivered by Premier Li Keqiang during the fifth session of the 12th National People's Congress, the government reiterated a modest and differentiated property policy stance.
"The Government Work Report called for sustainable and healthy property market development and some senior officials talked about avoiding property market fluctuations, implying that neither too much property strength nor weakness is desired," said a UBS China research note.
The Government Work Report said large city local governments should increase land supply and regulate housing sales to curb rapid price increases, while lower tier or smaller cities should provide support for building upgrades and migrant settlement-related demand.
The report also called for another 6 million units to be constructed for shanty town renovations in 2017. The much-talked-about property tax is reportedly not in the legislative agenda for this year and thus is unlikely to be implemented soon.
Clearly, housing market policies for lower-tier cities will focus on reducing inventories in the next 12 months. This may include a wide range of measures including easier access to financing for homebuyers, according to Zhang Dawei, chief analyst with Centaline Property.
Wang Zhaoxing, deputy director of the China Banking Regulatory Commission, said during a media briefing last week that differentiated credit financing policies will be applied to the housing market. "For third-and fourth-tier cities with excessive pressure of reducing inventories, and for buyers with solid demand (people who migrated from rural areas to urban areas), favorable credit financing policies will be given as a support," said Wang.
For homebuyers, this could mean more favorable policies for seeking mortgage loans in lower-tier cities, to get more discounts on benchmark borrowing rates, or lower down payment requirements for buying their first home.
In Shanghai and Beijing, and some other key cities, financing has been tightened for homebuyers as most lenders have pushed up interest rates for mortgage loans by up to 10 percent.
According to Xing Ziqiang, chief economist with Morgan Stanley in the China market, Chinese homebuyers used more credit financing to buy homes in the last two years.
Very often, a buyer pays some 50 percent of the home price toward down payment and borrows another 50 percent from lenders.
"Although homebuyers in China have been accelerating leverage from banks when buying properties, the level is far from risky," said Xing.
For developers, tighter policy environment in top-tier cities, and the pressure of reducing inventories in lower-tier cities, could mean more pressure on their cash flow.
A research note from Essences Securities said that shrinking sales in top-tier cities could mean slower cash income for developers, as that was the main source of cash in the past few years.
It takes time for lower-tier cities to transfer inventory into cash income. For big companies that have diversified their development portfolios, the pressure is under control. For smaller ones, they need to come up with more measures to accelerate sales to maintain a safe cash flow, the note said.
According to the Government Work Report, the administration aims to complete 6 million units under shanty town renovations, improve public services and facilities for people who live in affordable housing projects, and build affordable rented housing projects.
"This is also an opportunity for companies that are involved in urban renovation projects. For developers and companies that have capacities to join public-private partnership or PPP programs, renovation projects are good channels to diversify investment portfolios," said a research note from Zhongtai Securities.
