China can’t count on old tactics to revive property market
Cities are relaxing restrictions on home buyers in order to fulfil the mainland's growth target
China is increasingly resorting to its old tactics to help revive a rapidly cooling property market and safeguard its target of 7.5 per cent growth for this year.
Critics still point to the 4 trillion yuan (HK$5.03 trillion) stimulus package rolled out at the climax of the global financial crisis by the former government under president Hu Jintao and premier Wen Jiabao.
It made it very easy for people to speculate in the property market, which quickly pulled out of its downturn, and lit a rocket under housing prices.
However, things are always easier said than done.
When the crucial property market began to spiral downwards again this year, China's new leaders found themselves confronting the same problem.
At first, mainland cities relaxed their cooling policies quietly, avoiding any publicity. But the downturn only deepened. Then came public announcements last week by Hangzhou, Wenzhou and Ningbo - the three most important cities in prosperous Zhejiang province and among those worst hit by property oversupply.
One after another, they reopened the door to ownership of multiple homes and allowed non-local residents to buy new flats. For these cities, the priority is to sell down their mounting housing stock as soon as possible, so as to revive a vital driver for the local economy.
And they hope a public statement about the relaxation of policies will work better in improving market sentiment.
Chengdu in Sichuan province took a more aggressive step over the weekend. To encourage banks to extend cheaper loans to buyers of first homes, the city government decided to reimburse 3 per cent of mortgages to lenders granting loans at or below benchmark rates until the end of this year.
So far, about 30 cities have relaxed home purchase restrictions they had imposed since 2010. Many other cities are expected to follow suit.
"I am a bit disappointed," said Chen Huanchun, a deputy chief of Head Join Real Estate Consultant, a Hangzhou-based firm. "I totally understand why the government is doing so. But this is resorting to the old ways of protecting economic growth."
The irony is chances are slim that the relaxation of restrictions alone will boost demand, and the risk of betting on further home price rises is much higher.
Banks now face dearer funding costs than in 2009, as a result of interest rate liberalisation, and they are cutting their exposure to the property sector.
Despite renewed calls from regulators to support buyers of first homes, mainland lenders have barely offered any discounts on mortgages.