A sustainable housing recovery in Beijing requires more policy relaxation

In  Beijing, worries about the sustainability of a nascent housing recovery linger despite two strong doses of supportive policy in less than a month.

The central bank slashed the regulatory down payment requirement on March 30 for second home buyers to make it easier for them to upgrade to bigger and better flats. Then on April 19, it cut banks’ reserve requirement ratio (RRR) more than expected, injecting about 1.2 trillion yuan (HK$1.5 trillion) of liquidity into the economy to help prop it up.

“I’m afraid the impact will wane in May or June if policies remain unchanged afterwards, leaving the market outlook uncertain in the second half,” said Zhang Xu, an analyst with Homelink, the biggest property agency in Beijing.

She and other analysts expect these new policies will speed up banks’ approvals for mortgage and development loans, easing the cash strain for the still struggling sector.  

So far, most commercial lenders in Beijing demand 50 per cent down payment from second home buyers, rather than the 40 per cent encouraged by the central bank, because they are under pressure from a squeeze in profit margins and a surge in bad loans.

Global ratings agency Fitch said in a report last week  that China’s housing slump was persisting, although there are signs of the slide bottoming out.

The country’s four first-tier cities are widely expected to lead the recovery, as the supply glut there is less severe and demand is stronger. However, even among the four – Beijing, Shanghai, Guangzhou and Shenzhen – performance differs, with market reaction in the capital much calmer than  in the southern boom town of Shenzhen, where asking prices in the secondary market rose overnight  on the announcement of a down payment cut  of up to 10 per cent for some flats due to limited supply.

“My agent advised me not to increase the price,” said Vivian Lin, who is trying to sell a small flat near Beijing’s eastern fourth ring road. “Otherwise, the deal will take longer to close.”

Chong Haiyan, an agent at Beijing’s No.3 real estate agency Maitian,  said transactions were coming back in recent weeks, but not the prices. “Homebuyers are cool-minded and will no longer chase up prices,” she said. “They are simultaneously looking at many  areas and will walk away from a deal if the seller tries to raise the price.”

Data from Homelink showed visits by potential home buyers more than doubled in March from February to 170,867 in Beijing and the secondary market supply rose 97 per cent to 44,683 flats during the period. The two numbers are the highest in at least one year, indicating strong sentiment improvement from both sides.

Transactions in the secondary market have been picking up this month in Beijing, with a week-on-week increase of 25.2 per cent in the week of April 20 to 4,522 units. The average selling price rose 1 per cent during the period to 35,752 yuan per square metre, Homelink data showed.

In the primary market, excluding government-subsidised projects, sales surged 24.77 per cent during the same period, but the average price fell 7.59 per cent, according to data from  China Real Estate Index System.

“As the market is expected to move upward, some developers are waiting for a better  time to start selling new projects,” Homelink’s Zhang said.

“But for many end-users, prices are beyond their reach and policies  for first home buyers have yet to be eased,” she added.

Down payments for first-time buyers remain at 30 per cent if they are borrowing from commercial banks.