More Chinese cities ease grip on housing as economy stutters

BEIJING Tue May 6, 2014 6:30am EDT

Customers visit a real estate exhibition displaying models of apartments in Hefei, Anhui province, May 1, 2014. REUTERS/Stringer

Customers visit a real estate exhibition displaying models of apartments in Hefei, Anhui province, May 1, 2014.

Credit: Reuters/Stringer

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BEIJING (Reuters) - More Chinese cities are rolling out measures to encourage home purchases, in a sign that local governments are increasing efforts to safeguard an important driver of growth in China's faltering economy.

The loosening of home purchase rules in the eastern city of Tongling in Anhui province and Ningbo, the coastal city of eastern Zhejiang province, follows several other smaller stimulus steps in recent weeks to juice the world's second-biggest economy.

Tongling has introduced steps including providing tax subsidies to first-home buyers, and cutting down-payment rates to 20 percent from 30 percent for select buyers, the city government said on its website on Monday.

Ningbo has also relaxed home purchase restrictions, the official China Securities Journal newspaper reported on Tuesday, quoting a meeting held by a local industry association.

By relaxing the rules, local governments are effectively reversing a near-five-year-old policy of reining in China's frothy property market, underscoring policymakers' resolve to support an economy growing at its slowest pace in decades.

Analysts believe the health of China's property market will likely influence whether Asia's economic powerhouse suffers a shallow or deep downturn, noting that the real estate sector accounts for about 17 percent of the country's total annual economic output.

China's growth engine has lost steam in the past year, squeezed by lackluster demand for exports and the government's push to cut its own investment in a bid to reshape the economy.

Given slackening growth, Beijing will likely back local government efforts to support the housing market lest a collapse in prices jolts the economy and undermines its reform drive, the analysts say.

"If property activity weakens further, we think the (central) government may allow various local governments to relax home purchase restrictions and cut down the current hefty down-payment requirements," economists at UBS said in a note to clients.

The latest moves follow recent similar measures by three other cities -- the southern city of Nanning, the eastern city of Wuxi and the Xiaoshan district in the eastern city of Hangzhou -- to ease rules for buying homes or land.

A cooling property market pressures the incomes of local governments, which depend on the real estate sector for a substantial part of their proceeds.

Data from the land ministry showed in April that residential land price inflation cooled for the first time in nearly two years in the first quarter, and is likely to ease further.

The steps in the housing market join other measures by Beijing to shore up the economy, even though it has ruled out the use of major stimulus to fight short-term dips in growth.

Recent measures include the relaxation of reserve requirements for some rural banks, tax breaks for more companies to support job creation, and speeding up investment in railways.

CHANGING THE RULES

So far, the turnaround in China's housing policy is only confined to small cities. Local governments also do not always have the support of the central government when loosening housing controls. Back in 2012, Beijing forced governments in areas including Wuhu, Foshan and Chengdu to retract their plans to ease controls on the real estate sector.

Yet, analysts expect Beijing will approve the easing measures this time, in line with its preference to tailor policies for different local economies in China.

"There are increasing concerns of a turning point for the property market," said Liu Yuan, the head of research at the property consultancy Centaline in Shanghai. "We expect the central government would react differently this time."

China's new home sales in terms of floor space in 54 major cities dropped 25 percent in first four months of 2014 from a year ago, data from Centaline showed.

The trend of easing demand for housing continued to early May. These cities saw home sales falling 47 percent from a year earlier in the first three days of May during the Labour Day holiday, it added.

China's home prices rose at double-digit rates in most cities last year, but the market started cooling since late 2013 as authorities clamped down on speculation, and as banks made it harder for buyers and small developers to get loans.

"Our baseline remains that the government will have to loosen fiscal, monetary and property-sector policies significantly to achieve our forecast 7.4 percent GDP growth in 2014," Zhang Zhiwei, economist for Nomura said in a note to clients.

(Reporting By Xiaoyi Shao and Koh Gui Qing; Editing by Shri Navaratnam and Jacqueline Wong)

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