Chinese cities Qingdao, Suzhou reinstate homebuying curbs a day after scrapping them, leaving market in limbo

Restrictions on home purchases in some major second-tier cities were back in place just 24 hours after they were lifted
‘The U-turns were unexpected, and suggest policy changes on housing should still be in line with the tone from the central government,’ says analyst

China property

Pearl Liu

Published: 7:30am, 20 Sep, 2022

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Restrictions on home purchases in some major second-tier cities were back in place just 24 hours after they were lifted, leaving the future of China’s bruised US$1.7 trillion housing market hanging in the air once more.

Qingdao, a large port city in northern Shandong province, scrapped all purchase restrictions on second-hand homes on Thursday. However, by Friday morning, in a revised version of its real estate policy posted on the WeChat account of the local housing authority, it had backtracked, removing a pledge that “lived-in homes will be traded without any caps”.

Suzhou in eastern Jiangsu Province announced on Thursday it would allow non-local residents to buy a first home in the city. By Friday, it had withdrawn the concession.

The dramatic relaxation of measures designed to cool property prices garnered a lot of reaction online and in news media. This, said analysts, in the absence of any explicit support from central government, may have prompted local authorities to quickly rethink.

“The U-turns were quite unexpected, and suggest that policy changes on housing currently still need to be very cautious and should still be in line with the tone from the central government, which is that a house is for living in, not for speculation,” said Yan Yujin, director of the Shanghai-based E-house China Research and Development Institute.

“Such large-scale loosening of policy may have been too public.”

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Last week’s easing of house-buying curbs had an immediate and dramatic effect on market sentiment. The Hang Seng Mainland Properties index shot up by as much as 6.9 per cent on Thursday.

Friday’s hasty retreat sent the index down 2.8 per cent, bringing its losses to 40 per cent so far this year.

Some 250 cities have rolled out hundreds of measures to relax property curbs this year, including lifting restrictions on home purchases and resale, and lowering mortgage rates and down payment ratios.

But the markets are looking to Beijing’s tone as a gauge of whether more supportive policies are on the cards.

“The current downturn has become a critical policy problem and a crisis of confidence that only the [central] government can fix. The best indicator of the government’s resolve is likely to be revealed in the 20th Party Congress this October,” Edward Chan, an analyst with S&P, wrote in a research note.

In 2017, Beijing set out to tamp down on what it considered warning signs of a burgeoning property bubble.

The government introduced rules including caps on prices, mortgage limits, home purchase and resale restrictions and various strictures on property developers.

The market-cooling regulations culminated in the central bank’s “three red lines” credit limits that severely curtailed the ability of developers to refinance their borrowings through loans.

Five years on from those first measures, the bubble has burst in a way that burned individual homebuyers, investors, builders, banks and local governments.

Property and related activities account for about 29 per cent of China’s gross domestic product (GDP) – an amount comparable to the entire economies of Spain or Ireland before the global financial crisis, according to Kenneth Rogoff, an American economist and Harvard University professor.

As a result, a 20 per cent decline in real estate activity in China could lead to a 5 to 10 per cent drop in GDP, even without being amplified by a potential banking crisis, Rogoff said in a research paper last year.

Two thirds of the major listed companies in these sectors reported falling profits in the first six months of the year.

That is not good news for China’s already-faltering economic growth, particularly ahead of the Communist Party’s 20th congress.

Contracted sales by the top 100 Chinese property developers were down by about a third in August year-on-year, following a 40 per cent drop in July and 50 per cent decline in June.