Easing measures aim to boost China's slowing real estate market

On March 30, the People's Bank of China the Ministry of Housing and Urban-Rural Development (MOHURD), the China Banking Regulatory Commission and the Ministry of Finance jointly issued two easing measures in order to boost the slowing real estate market and China's economy.

These easing measures were the first in five years and included a lower down payment of 40 per cent for families with a cleared mortgage buying their second homes (against 60 per cent to 70 per cent previously), and a relaxation of sellers' capital gains tax after holding a property for two years (against five years).

The new measures came as no surprise to the market, as all major economic indicators were alarming.

According to DTZ Residential, developers were cautious in re-investment due to slow sales and high unsold inventory in the lower-tier cities, resulting in a slowdown in national new homes investment of 8.5 per cent in the first quarter of this year, the lowest growth rate in the last 16 years.

New starts and new homes sales volume dropped 20.9 per cent and 9.8 per cent respectively (year on year) during the same period.

DTZ Residential's survey shows that the unsold inventory between 2011 and the first quarter of this year has exceeded 1.32 billion square metres, let alone the historical unsold stock of another 1.5 billion square metres.

In summary, except tier-one, upper tier-two and provincial capital cities that are supported by strong end-user demand, the over-supply situation across the nation is worrying and has to be resolved.

DTZ Residential's study also revealed that it will take an average of about 6.3 months to absorb the existing unsold stock in tier-one cities, 11.2 months in tier-two cities and 15.2 months nationwide. The lower tier the city, the higher the unsold inventory level, and the higher the risk.

Given that real estate investment is one of the major economic forces, Beijing has spared no effort to restore the market momentum. On the demand side, a series of relaxing monetary policies including interest rate cuts and RRR reduction have been in place and apparently the trend will continue.

By virtue of the latest notice by MOHURD on March 25, the ministry aims to rectify oversupply, particularly in tier-three and tier-four cities, and at the same time lay down plans to cater to the housing demand generated in the course of urbanisation.

The notice allows developers to change the unit sizes and layouts with approved building plans to suit the prevailing demand and also provides a mechanism for local governments to buy existing stock from developers for public social housing purposes, particularly for the new agricultural immigrants moving to the cities.

It is estimated that there will be some 15.88 million people moving to the city per annum by 2030. As long as supply meets demand from this new stream of users, the oversupply situation should be resolved in five to six years.

Under the notice, developers are also allowed to apply for a change of land use of undeveloped land from residential to other uses such as new era industry, homes for the elderly, cultural industry or recreational industry, which receive greater government support under the latest "New Order" strategy.

The real estate market in the four tier-one cities responded positively to the new measures with new homes sales up by 10.7 per cent in the first quarter of this year, with Shenzhen sales rising 103.3 per cent.

Preliminary April figures (up to the 20th) showed a further rebound of some 23 per cent in sales transactions. The average price in tier-one cities went up 5.3 per cent last year (year on year) and further soared by 8.2 per cent in the first quarter of this year.

Shenzhen outperformed by rising 17.5 per cent in the first quarter. However, tier-two and other lower-tier cities benefited less both in terms of sales volume and price, and were still under downward pressure.

Both new homes sales and price in tier-two cities have dropped by 4.1 per cent in the first quarter of this year.

The real estate market in mainland China is always policy driven. Given the relaxing monetary policies and loose regulatory measures, not to mention stimulus measures, the outlook is cautiously optimistic.

Alan Chiang is the head of residential, Greater China, DTZ