Business / Industries

'No crisis' in housing within a decade

By Hu Yuanyuan (China Daily) Updated: 2014-03-08 02:04

There won't be a crisis in China's property sector within a decade, thanks to the urbanization process, government officials said when attending the sessions of the legislators and political advisers.

"We need to address the housing problem of 100 million rural residents who will move into cities in the next 10 to 15 years, which helps support the real estate sector," said Qiu Baoxing, vice-minister of housing and urban-rural development.

"But now is the time to take some measures in advance; otherwise, the market will collapse when demand diminishes at the end of the urbanization process," said Qiu.

"Meanwhile, we have the ability to avoid the type of real estate bubbles that occurred in Hainan (province) and Wenzhou (in Zhejiang province)," Qiu stressed.

Home prices are still under strong upward pressure and restrictions on home purchases will continue this year, according to Qi Ji, also a vice-minister of housing and urban-rural development.

The government will take a differentiated approach in setting property policies, according to Qi.

For major cities that have experienced strong price increases, more supply will be encouraged, especially concerning small and medium-sized apartments.

Restrictions on purchases for investment will persist, including limits on the number of homes one family may purchase.

For cities that have a large stock of housing, measures will be taken to restructure the land supply structure, Qi said.

In October, the Beijng municipal government announced it would encourage the availability of owner-occupied commercial residential projects at 70 percent of the market price.

Buyers aren't allowed to sell these homes within five years and the government has priority to repurchase those units or take 30 percent of any price gain after that period.

A reasonable level of housing stock in a city, according to Qi, is sufficient to meet market demand within 12 to 15 months. Housing stock in a few cities has exceeded the reasonable range.

Some real estate projects in Hangzhou, Zhejiang province, offered a price discount last month, triggering worries that more price cuts in other cities will follow.

"The another half of the story is that the projects sold out in no time after they offered a discount," Qi stressed.

Property prices in first-tier cities will see another year of strong gains under the current monetary policy framework and supportive supply-demand dynamics, according to research from Australia and New Zealand Banking Group Ltd.

Property transactions declined about 16 percent year-on-year in the first two months of 2014, as many commercial banks tightened mortgage lending amid the rising cost of funds.

However, as China appears to be easing its monetary policy and funding costs have dropped sharply, commercial banks will likely resume mortgage lending again, according to ANZ.

"Despite weak transaction volume, property prices continued to pick up on a sequential basis in January and February, indicating that the overall demand is still solid," said Liu Ligang, an economist with ANZ.

However, gains are likely to be limited in third- and fourth-tier cities, where excess supplies seem to have emerged, it said.

Sales and property prices will grow more moderately this year due to uncertainties in financing conditions and economic prospects, according to a report by Standard & Poor's Financial Services LLC.

Listed Chinese developers may face a contraction in funding channels and higher funding cost, according to the report.

"We believe leverage will rise in the next 12 months for some developers, as a result of this round of aggressive land acquisitions," said Bei Fu, analyst with Standard & Poor's.

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