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Lower sales force cities to relax home purchase curbs

2014-07-28 13:45 Global Times Web Editor: Qin Dexing
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Driving in the downtown area of Hohhot, capital of North China's Inner Mongolia Autonomous Region, Jin Fang felt surprised to see so much more high-rise apartment buildings compared to three years ago, when she left the city for studies.

"How can these apartments be sold out in such a short period given the limited demand here?" Jin, a 31-year-old white collar worker who lives in the city, said skeptically to the Global Times Wednesday.

Jin said recently she was always being bothered by calls from housing agencies staff promising high discounts on apartments, but she kept refusing them because she had already bought an apartment of 125 square meters with her husband in 2012.

Jin's confusion is borne out by the facts.

The total inventory of new apartments for Hohhot hit a high number of around 120,000 units as of June, according to data filed with Centaline Property Agency, a real estate consultancy. However, only 3,780 units were sold in the first five months of this year, according to Hohhot real estate portal 365hf.com.

In the light of the current poor sales, it will take around 10 years for the city to fill up its housing inventory, according to the Centaline Property Agency.

  Relaxing restrictions

Under pressure from the high inventory of unsold homes, Hohhot's housing authority announced in June that it had relaxed its home purchase restriction policies, which have been implemented in at least 40 major Chinese cities since 2011 as part of the central government's efforts to curb property speculation. With this move, Hohhot became the first city to completely withdraw its home purchase restriction policies.

The relaxation means Hohhot residents will not be required to offer documentary evidence of any apartments owned by their family when they plan to buy apartments. As such, Hohhot residents can purchase apartments regardless of whether they or their family already own any others.

Following the move by Hohhot, around 30 cities including Ji'nan and Chengdu were reported to have followed suit, having canceled or relaxed their home purchase restrictions as of Thursday, according to local media reports.

  Falling sales

The local governments' moves were mainly due to poor home sales since the beginning of this year.

The total sales area of new homes nationwide in the first half declined by 6 percent year-on-year, reaching 483.65 million square meters, according to the National Bureau of Statistics.

Cities in the eastern part of China have witnessed substantial declines, with their total sales areas dropping by 13.3 percent year-on-year.

In Beijing, new home sales in the first half of this year saw a dramatic slump of 48.7 percent year-on-year, with 22,782 units of new homes being sold, according to data filed with Centaline.

Beijing has not canceled its home purchase limits, which was implemented in 2010.

However, analysts believe the moves are unlikely to reverse the downward trend in their property markets, as the homes in some second- and third-tier cities like Hohhot are much more than the demand from homebuyers.

"The room for growth of demand in major second- and third-tier cities is small," Liu Yuan, senior research manager at Centaline Property Agency in Shanghai, told the Global Times Thursday.

Twenty-three of the 40 major second- and third-tier cities, such as Guiyang and Chengdu under survey, have seen their average sales areas of new apartments per person exceed the areas for first-tier cities including Beijing and Shanghai, according to a report by the agency released in June.

The average sales areas of new apartments per resident in some cities like Changsha and Chengdu have doubled since 2008 hitting 15 square meters, much larger than 9 square meters in the first-tier cities like Beijing, the report said.

"The demand in these second- and third-tier cities will rise slowly due to a slower growth of population compared with the first-tier cities," Liu noted.

For those homebuyers like Jin Fang who have already bought apartments, they will hold wait-and-see attitudes. "It seems that there is little room for further appreciation for property assets in Hohhot," Jin said.

Yet in contrast to the declining home demand, the number of new homes being built by developers has continued to increase.

"The home supply in some second- and third-tier cities is too large after four or five years of fast development," Yang Shaofeng, general manager of Beijing Lianda Sifang Real Estate Consultancy, told the Global Times Thursday.

Differentiated policies

Yang thought the cancellation of home purchase restrictions by the local authorities might not be opposed by the central government.

Earlier in March, the central government vowed to adopt different property macro-control measures for different cities.

"Local governments will be authorized [by the central government] to take differentiated measures to ensure their property markets will be healthy," Yang noted.

Liu Yuan of Centaline Property said "some housing authorities of cities that have seen better sales in the past may also possibly follow suit, because real estate is still their pillar industry."

Moderate liquidity needed

The cancellation of home purchase restrictions has also raised concerns that home prices may rebound again to sky-high levels.

However, both Liu and Yang said soaring home prices will be unlikely due to the overabundance of apartments that have been built.

Li Zhanjun, director of research and development at Shanghai-based E-House China R&D Institute, thought the oversupply of money in the past four years caused the soaring of asset prices.

Excess liquidity caused by the central government's 4 trillion yuan ($602 billion) fiscal stimulus plan in 2008 "directly led to speculating opportunities and home prices rising," Li told the Global Times Thursday.

"If the liquidity supply is maintained at a reasonable level in the future, the rise of home prices is unlikely," Li noted.

Jin still remembers when three years ago, people from other cities rushed to Hohhot to buy property, which directly caused home prices to rise. "Most of the buyers were private lenders from Ordos city, where unregulated private lending activities were rampant" partly due to excessive liquidity, said Jin.

"I hope a rapid rise in home prices will not happen again," Jin said.

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