The Ongoing Housing Dilemma

Relaxation measures put housing control policies to the test By Lan Xinzhen

The Ongoing Housing Dilemma

Relaxation measures put housing control policies to the test By Lan Xinzhen

Housing regulators in Yangzhou in east China’s Jiangsu Province announced on May 8 the beginning of an incentive policy for new home buyers.Jointly issued by local fi nance and housing bureaus, the announcement said that financial rewards would be offered to people who buy fully furnished houses smaller than 144 square meters from July 1 this year to June 30, 2013.For houses no bigger than 90 square meters,home buyers will receive a reward of 0.6 percent of the total price; for houses between 90 and 120 square meters, the reward will be 0.5 percent of the price; and for houses of 120 to 144 square meters, the reward rate will be 0.4 percent.

The new reward plan applies only to fully furnished houses.

The move will hopefully boost the real estate market in response to soaring property prices.

Beijing began rolling out measures in late 2009 to rein in property speculation, winning nominal success. As a result of the restrictions on housing purchases, China’s real estate market has recorded declines in both trading volumes and prices since last year. Not only are property developers plagued by the sluggish market, but local governments have also withstood losses as a result of fewer tax and land leasing revenues.

Several local governments have issued loosening policies, which were usually short-lived. There has been no action taken by the Central Government so far against Yangzhou’s easing measures. The Ministry of Housing and Urban-Rural Development stressed the basic realty market control policies would remain unchanged.

During his inspection tour to Wuhan, capital of central China’s Hubei Province, from May 18 to 20, Chinese Premier Wen Jiabao asked local authorities to carry out property tightening measures and increase the supply of affordable housing for low-income earners to ensure a healthy property market.

Stagnant market

According to the National Bureau of Statistics(NBS), real estate investment, accounting for 13 percent of China’s gross domestic product in 2011, rose 9.2 percent in April from a year earlier, the first single-digit rise since November 2009. Newly started construction,an indicator of future supply, fell in April by 14.6 percent from a year earlier, a drop of 4.2 percent compared with that in March.

Sales of commercial housing units fell 11.8 percent year on year to reach 1.24 trillion yuan ($197 billion) in value in the first four months of this year. As the property market remains weak, investment in real estate development in the January-April period increased 18.7 percent from a year ago to 1.58 trillion yuan ($250.79 billion), slowing 4.8 percentage points from the January-March period.

Hao Daming, an analyst with China Minsheng Securities, attributed the singledigit growth in housing investment to ongoing grip on the housing market.

“Home sales have slackened in response to the Central Government’s tightened controls,creating mounting inventory pressure for developers. The room for further home price cuts is small and the turnover volume shrink has trapped the housing market,” said Hao.

Yangzhou is one of the epicenters of China’s sluggish housing market. According to a report by the Yangzhou City Government, the sales area of commercial houses plummeted 30.96 percent year on year to 442,100 square meters in the fi rst four months of this year. By the end of April, the city’s commercial house inventory had climbed to 2.87 million square meters, up 35.55 percent year on year.

Yangzhou has seen a slackening of commercial house sales and mounting pressures of inventory since the second half of 2011,said the report.

The sluggish property market has also cast doubts on the outlook of China’s fixed asset investment growth, as property accounts for about a fifth of the country’s total fixedasset investment. Official statistics showed that China’s industrial production took a sharp dive in April, with the industrial valueadded growing at its lowest pace in nearly three years. Fixed asset investment rose 20.2 percent in the fi rst four months, down 0.7 percentage points from the fi rst-quarter growth.

China’s industrial value added measures the fi nal output value of industrial production, or the value of gross industrial output minus intermediate input, such as raw materials and labor costs.

“This dip in real estate investment was mainly responsible for a dramatic decrease in industrial value added in April. It shows that the slowdown in housing construction, in response to the government’s efforts to control the real estate bubble, also had an impact on other sectors,” said Hao.

Just relax

NO PLACE LIKE HOME: Visitors look at a model of a housing project they are interested in at a property exhibition in Yinchuan,capital of Ningxia Hui Autonomous Region,this April

The depressed housing market stoked expectations that future curbs on the property market may be eased. Although the Ministry of Housing and Urban-Rural Development has been reiterating the government’s commitment to bringing housing prices under control, local governments’ intermittent easing policies have fueled policy-loosening predictions.

The situation in Yangzhou provides the latest test for the government’s property market policies.

People holding Shanghai resident cards for more than three years are eligible to buy a second home despite their non-permanent residence status, said the Shanghai Municipal Housing Security and Administration Bureau on February 25 this year.

On February 9, Wuhu in Anhui Province released a housing policy, offering subsidies to fi rst-home buyers. In October 2011, Foshan in Guangdong Province said it would allow residents to buy a second home.

Although these attempts were scrapped only days after they came out, the mild easing policies by local governments have been read by some as a way of testing the efficacy of policy loosening.

The sluggish property market withheld developers’ attempt to purchase new land,creating funding issues for some local governments since land sales used to account for a large part of local government revenues. In this context, local governments may urge the Central Government to ease its grip on the real estate sector.

The real estate sector is related to many other industries, and the tightening policies have affected the development of those industries and even the growth of local GDP, said Yi Xianrong,a researcher with the Institute of Finance of the Chinese Academy of Social Sciences.

“The slowdown in local GDP growth forced local governments to seek ways to ease the property market,” Yi said.

The Central Government’s position is not likely to change in the short term, but there will be space for local governments to gradually ease their property policies, according to some analysts.

Still constricted

The easing policy in Yangzhou rapidly created widespread media commentary about whether it would come into con fl ict with the Central Government’s real estate restrictions.

In response, the Yangzhou Housing Management Bureau released an explanation, claiming that the policy was drafted on the basis of a document that said by 2015, 40 percent of the new housing around the city should be re fi ned decoration houses.

To achieve this goal, Yangzhou has introduced a policy to encourage buyers, said Sun Wei, Deputy Director of Yangzhou Housing Management Bureau.

Sun said Yangzhou will follow the Central Government’s policy to restrict sales of residential properties, but the city has no plan to revoke the policy to encourage and reward individuals who purchase refined decorated houses.

Previous cases in which the Central Government ordered the cities of Foshan and Wuhu to scrap their easing measures were indicators to many as insistence on tightening control.Real estate developers and local government of fi cials are closely monitoring what actions the Central Government may take concerning what was seen by many as new relaxation measures implemented in Yangzhou.

Zhang Dawei, chief supervisor and researcher at Centaline Property Agency in Beijing, said offering tax incentives to apartment buyers is a measure aimed at assisting the realty industry to boost revenues.

“Yangzhou’s easing policy is applicable to all home buyers, whether they are residents or not. This is the best the local government can do. The implication of the new policy will have a profound impact on market expectation and fuel speculation that enforcement of the Central Government’s policy on market controls is unlikely to become tighter as long as the Central Government leaves the Yangzhou Government alone,” said Zhang.

Wan Zhi, an analyst at Everbright Securities, believes Yangzhou’s new policy shows that local governments are keener to save their local property market than before and local government initiatives to ease property market restrictions are set to proliferate in the future.

Chen Baocun, Deputy Secretary General of the National Real Estate Manager Alliance, said that the sluggish housing market needs a boost.

“We should encourage reasonable housing consumption and development of commercial houses. This is in accordance with the country’s goal of promoting the industrialization of the housing sector,” said Chen.

According to Liu Yuanchun, deputy head of the School of Economics at Renmin University,two reasons exist behind Yangzhou City Government’s boosting efforts.

First, the local government, whose fi nances rely heavily on land sales, faced mounting pressures from fiscal revenue decreases and made efforts to boost the housing sector. Second, the overall slowdown in local economic growth was a result of the slackened housing sector. Local administrations are eager to provide assistance to property developers in their respective regions to shore up business activity.

“The housing market has not seen a drastic price slump, while the decrease in housing sales heaped huge fi nancial pressures on the local government. China’s housing-control policy is at a critical moment,” said Liu.