Wenzhou eases property rules in singular change

The eastern Chinese city of Wenzhou has relaxed restrictions on property purchases to allow some people to buy second homes, the first in the country to ease controls, though analysts say other Chinese cities are not expected to follow suit.

Wenzhou’s policy shift comes as investors increasingly bet that China may soon loosen its near four-year-old property controls to shore up its economy, which is grinding towards its slowest annual growth in 23 years this year.

Under the new rule, first-home buyers in Wenzhou can now buy two houses, reversing a restriction introduced in March 2011 that barred them from purchasing two properties as part of a nationwide campaign to calm China’s frothy real estate prices.

“This is true,” an official from the Wenzhou House Management Centre said on Monday, confirming a local media report that the city has eased its property policy.

Wenzhou’s property controls were always more stringent than other Chinese cities, where only purchases of third homes were barred. As such, Wenzhou’s latest policy easing brings it in line with its peers.

A birthplace for Chinese enterprise, prosperous Wenzhou was previously plagued by fervent property speculation. But its housing market has slowed under the weight of government policy, and the city was alone among 70 Chinese cities to see annual price falls in May and June, official data showed.

House prices in Wenzhou have fallen year on year for 22 consecutive months since September 2011, official data showed.

The property sector is a rare bright spot in China’s slowing economy, ironically so since it is the one area where the government most desires a cool down.

Despite having leaned against the house market for almost four years by banning purchases of multiple homes – a centrepiece in property controls – and choking off financing to developers, China still faces record home prices.

The failure to keep house prices in check is in part because controls have butted up against local governments’ need to keep property market buoyant so they can sell land at high prices to raise revenues.

Not signal turnaround

Analysts say Wenzhou’s move does not signal an imminent relaxation in property purchase restrictions nationwide, and that it remains to be seen whether the city’s policy change would win the support of government leaders in Beijing.

“Wenzhou’s previous property curbs were too harsh and its home prices have fallen too steeply,” said Jia Yatong, a property analyst from Haitong Securities in Shanghai.

“It is only an individual case. We need to see whether other cities will follow, or whether Beijing will stop it,” Jia said.

Still, investors are hopeful China will soon relax its property policy to bolster an industry that accounts for 15 per cent of the world’s second-largest economy.

Some analysts have even jumped the gun by saying China has effectively loosened property controls by allowing developers to raise funds again.

Five property firms including Xinhu Zhongbao have announced since July fund-raising plans, but these plans have not been carried out as they have not been approved by the securities regulator, which says its ban on new financing for developers remain in place.

A July statement from China’s top decision-making body, the politburo, did not mention a continuation of the government’s property controls, stirring analysts’ hopes that the government would desist from imposing new restrictions on the real estate market, and perhaps even loosen controls.