Policy moves spur recovery in home prices

Effects of down payment easing, lower transaction costs show in February realty data

Home prices in 100 of China's biggest cities climbed an average of 0.6 percent month-on-month in January, signaling a recovery in demand, according to a survey released on March 1 by the China Real Estate Index System.

The average price of a new property was 11,092 yuan ($1,692; 1,556 euros) a square meter, up 5.25 percent year-on-year, with 61 cities recording month-on-month growth.

Analysts say government policies have helped in managing diverse risks in first-tier cities, where the market tends to overheat. In smaller cities, they say, significant inventories need to be reduced, and further efforts are needed to match supply with demand.

In second and lower-tier cities, moves to relax mortgage down payment requirements have helped boost sales of first and second homes. Thus, inventories are lower now, analysts say.

China's central bank and the China Banking Regulatory Commission said last month that the minimum down payment for first-time homebuyers in some regions fell from 25 percent to 20 percent of the cost of the property. This move came five months after authorities lowered the applicable down payment rate from 30 to 25 percent.

The down payment required for a second home was lowered from 40 to 30 percent, while costs of transactions were also cut further.

Deed and business taxes for home purchases were reduced on Feb 22, a measure that aims to boost market demand and clear unsold inventory. This is expected to help second-tier cities, where there is buyer interest.

The effect of such moves on deals for residential property in many second-tier cities has been obvious, according to industry insiders.

Zhao Xinshuo, a realtor at Baosha Real Estate in Wuhan, Hubei province, says sales have picked up in the past two months as more buyers now can afford the down payment.

The average home price in Wuhan climbed from 8,700 yuan per square meter in January to 9,110 yuan in February. Some 13,350 apartments were sold in January, with the figure rising to 15,295 in February.

Xia Mengju, 42, a prospective buyer in Wuhan, says the policy measures have spurred interest. "I've prepared a down payment for a 120-sq-m apartment, and I look forward to closing the deal by the end of the month."

Effective from March 2, the central bank lowered the reserve requirement ratio by 50 basis points for all financial institutions. Large banks need to pay 17 percent RRR and small banks 15 percent.

Song Yu, chief economist at Goldman Sachs Gao Hua Securities, says in a research note that the RRR cut will benefit the real estate market by helping to reduce inventories on the back of improved liquidity.

However, James Macdonald, head of China research with property services provider Savills, adds that more needs to be done to transmit the housing recovery from leading cities to lower-tier cities while ensuring first- and second-tier cities do not get overheated.

The average price of a new home in Shenzhen, Guangdong province, climbed 5.41 percent month-on-month, and 52.55 percent year-on-year, to 47,248 yuan per square meter, while the corresponding price for Shanghai remained at the January level but was still up 9 percent year-on-year, at 37,144 yuan per sq m, according to data from the China Real Estate Index System.

Shenzhen housing authorities say they are considering measures to curb any undue surge in housing prices, and are prepared to increase the supply of affordable housing and even indemnify such projects if required.

wuyiyao@chinadaily.com.cn

(China Daily European Weekly 03/04/2016 page26)