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More Chinese cities relax property rules in policy shift
August 7, 2014 / 8:16 AM / in 3 years

More Chinese cities relax property rules in policy shift

BEIJING, Aug 7 (Reuters) - More than half of China’s cities have relaxed property controls and analysts say more are expected to follow, suggesting the central government is easing its grip on the sector as the cooling housing market poses a growing threat to the economy.

Foshan, a southern city in Guangdong Province, relaxed restrictions on Thursday that limited the number of homes that residents can buy, the government said on its Weibo microblog.

With Foshan’s move, at least 28 regional governments in small- to mid-sized Chinese cities have openly or quietly relaxed home purchase restrictions this year, data from private property consultancies showed.

This means that over half of China’s 46 local governments have scrapped limits on the number of homes that Chinese can buy, in a bid to support economic growth.

In the last few years, local attempts to relax restrictions on the housing market unilaterally have often displeased Beijing and tougher measures were quickly put back in place.

But analysts say the increasing number of local governments which are unwinding controls now signals that Beijing is giving them the green light to bolster the troubled property market.

The central government had been waging a five-year campaign to curb red-hot housing prices and keep homes affortable.

“Given the central government’s tolerance for greater policy loosening in recent months, a further easing in purchase restrictions is expected in smaller cities,” Carlby Xie, a research director at real estate services company Colliers, said in a statement.

But with home prices still near all-time highs, some analysts are voicing worries that China may have buckled too much amid pressure to safeguard the economy, at the expense of calming a frothy housing market.

Fitch Ratings warned on Thursday that the loosening of property curbs, together with an easing in overall monetary policy, may stoke property speculation yet again.

STILL UNAFFORDABLE

To cool a bubbly housing market, China started in late 2009 a campaign to temper home prices that involved raising downpayment levels, mortgages rates and imposing home-buying restrictions.

Yet the controls have had a mixed record in delivering results.

Since 2009, home prices hit records highs in every year except 2012, and it was only this year when China’s economic growth ground towards a 24-year-low that the housing market finally lost some steam.

Following last year’s unusually strong performance, average home prices have fallen on a monthly basis since May, while new construction starts have tumbled.

Worried that record-low home affordability rates will cause social unrest, China’s central government has resisted a nationwide relaxation of the curbs in the property market.

Indeed, some experts said a broad relaxation in housing controls are unlikely to be carried out in the biggest cities of Beijing and Shanghai, where record-high home prices have sown public discontent.

But the hold-out has been painful for local governments, which benefit from a buoyant property market through revenues earned from selling land.

Analysts said easier housing policies will stabilise the market, though prices would not bounce back anytime soon.

“For those cities where there is an oversupply, a further price correction is inevitable,” Colliers’ Xie said. (Editing by Kim Coghill)

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