Dull sales may not be linked to second-home rules
Home sales in major mainland cities slowed down over the past few weeks, but analysts believe it has little relation to the reiteration of strict enforcement of higher down payment ratio for second-home buyers.
Property sales in Shenzhen primary market recorded the sharpest drop among major cities in July, down 18 per cent month on month to 540,000 square metres, from 660,000 sq metres in June, figures from property consultant DTZ show.
Beijing's property sales remained stable in July, while sales in Tianjin even increased by 17 per cent to 1.34 million sq metres from 1.15 million sq metres a month ago.
JP Morgan also recorded slowing transactions, saying total primary sales in the eight major cities it tracks - Beijing, Shanghai, Hangzhou, Guangzhou, Shenzhen, Chongqing, Chengdu and Tianjin - edged down 8 per cent month on month in July to 10.6 million sq metres. Of them, first-tier cities showed sharp declines while second-tier cities recorded double-digit growth. It attributed the drop partly to the fewer launches during the month. Property agents said sales in summer were traditionally slower than usual.
'The fall in property sales in major cities was mainly because developers have slowed down the launch of new projects. Most of the projects ready for sale have been launched early this year when the market began to recover,' said Alan Chiang Sheung-lai, head of residential property at consultant DTZ's mainland division.
Many developers had exceeded more than half of the annual sales target in the first half, and many are shifting their focus to higher prices in the light of declining inventory. Hence the reiteration of higher down payment ratio on second home had little adverse impact on the market.
In early July, Hangzhou started strictly executing the policy of housing mortgage for second homes, asking for a minimum down payment of 40 per cent of total house price and a mortgage interest rate at 1.1 times the benchmark lending rate. Shenzhen and Guangzhou made a similar policy reiteration later.
'Not all of the banks have tightened the mortgage for second homes. And most of the buyers do not rely on mortgage. They would only borrow 50 per cent of the price from the banks,' DTZ's Mr Chiang said, adding the impact of the control was less than what the market expected.
JP Morgan also believes there is adequate flexibility in the classification of 'second-home purchasers'. Since the China Banking Regulatory Commission's recent announcement on tighter mortgage policy on second homes did not emphasise the 1.1 times benchmark rate requirement, banks are still offering discounts to the benchmark rate as their mortgage rates, but slightly above 0.7 times the benchmark, which is only allowed to be offered to first-time homebuyers.
'We believe the measures are pre-emptive in nature to avoid deterioration of credit quality, rather than property-specific tightening measures,' said a JP Morgan report.
