Fitch: China Property Speculation May Re-emerge as Curbs and Credit Ease

Wed Aug 6, 2014 9:00pm EDT

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(The following statement was released by the rating agency) HONG KONG, August 06 (Fitch) Fitch Ratings says that the loosening of property curbs and the easing of monetary policies in China may unintentionally increase speculation on residential property. This may not be conducive for the positive restructuring of the homebuilding sector in the long term. The relaxation of home purchase restrictions (HPRs) in China this year may fail to boost sales meaningfully in light of the prevailing negative sentiment among potential buyers. More significantly, further relaxation, without the introduction of other speculation-cooling measures, may pose risks of encouraging and re-igniting speculation on residential property in the long term, as was experienced in 2009. These moves may end up attracting house buyers pursuing capital appreciation, especially in cities which have a stronger motivation to relax HPRs but do not have sufficient end user demand. Fitch also believes the recent easing policies may extend the life of uncompetitive homebuilders, which may delay and set back the progress seen in the first half of 2014 in restructuring and consolidating China's homebuilding sector. During this period, some uncompetitive developers have exited the industry, allowing those with stronger operations and finances to survive, a trend that may contribute to the healthy long-term development of the sector. Please refer to Fitch's special report "China Homebuilding Restructuring - Short-Term Risk Conducive for Long-Term Health" dated 13 May 2014, for further details. HPRs were introduced in Beijing in 2010 and expanded to most major cities in 2011, an initiative that has helped to suppress speculation on residential property. For example, developers reduced the area for housing units to meet demand from first-time homebuyers and upgraders in the mass market. These restrictions were meant to be transitory, to be in place only until the housing market matures. However, some local governments have started loosening the restrictions in the current lull in the housing market. National sales of mass market or commodity residential properties fell by 9%, and new construction declined by 20% in H12014. Because of the slowing demand, some third-tier Chinese cities including Wenzhou, Ningbo, Jinan, Haikou, Hohhot, etc have stated officially to have fully or partially relaxed HPRs since early 2014. Although there is no sign of relaxation in first-tier and major second-tier cities at this moment, some market participants expect further relaxation of the HPRs to occur later this year. At the same time, mortgage lending has increased on the back of continued monetary easing, leading to a 26% year on year rise in new CNY loans in June. Contact: Andy Chang Associate Director +852 2263 9914 Fitch (Hong Kong) Limited 2801, Tower Two, Lippo Centre 89 Queensway, Hong Kong Su Aik Lim Director +65 6796 7233 Kalai Pillay Senior Director +65 6796 7221 Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email:; Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: Additional information is available at Related research: China Homebuilding Restructuring - Short-Term Risk Conducive for Long-Term Health, 13 May 2014 Applicable Criteria and Related Research: China Homebuilding Restructuring - Short-Term Risk Conducive for Long-Term Health here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.