As investors slowly start to count the cost of the recent collapse in the Chinese stock markets and begin to seek other options, the sell-off could drive investors back into property, encouraged by a raft of new government stimulus programmes.
When the property market was booming, the Chinese government raised the downpayment required on a second apartment to 70 per cent, a measure aimed at cooling the market. In March, the government lowered it to 30 per cent, and now the ministry of housing and urban-rural development, the ministry of finance and the People's Bank of China in a joint move have lowered it to 20 per cent.
Meanwhile, benchmark interest rates have been cut five times by an accumulated 1.4 percentage points this year and China’s five-year mortgage rate has dropped to a near decade-low of 5.15 per cent, while that for loans drawn on the housing programme fund has dipped to an all-time low of 3.25 per cent.
"The pressure from the weakening economy and the declining stock market, plus new low interest rates from the central bank, combined with this new lower downpayment requirement, has confirmed expectations that the government will try to stimulate the economy by encouraging people to invest in economy," Li Qiaoling, a senior representative from China's biggest property company, Homelink, told the 21st Business Herald in Guangzhou.
Guidelines
The minimum payment applies to buyers who have paid off their previous mortgage. The big cities of Beijing,
Shanghai
, Guangzhou and Shenzhen can come up with their own guidelines for the lowest downpayment proportion. The property market is expected to have a pretty loose policy environment this year and next year, she said.
The headlines in recent months in China have been dominated by the equity markets, their spectacular collapse and the fate of small investors caught up in the bear market. In that light, the collapse of the housing market has been pushed further down the page.
However, as a share of wealth, equities probably make up only about a tenth of China’s overall household wealth, compared with property’s more than 40 per cent. The stock market surge began after investors started putting money into equities when prices in the property sector peaked about four years ago, but the collapse has prompted forecasts of a huge wave of investment heading for the property market.
Housing stock
Hu Jinghui
, vice-president of Homelink, said easing the loans would free up demand for buying apartments and lead to a “golden September and a silver October”, and also, crucially, get rid of existing housing stock by the end of the year.
"The housing fund has a limit on loans, so this new rule will promote low and medium-priced apartments but will have little effect on high price apartments," said Mr Hu.
It could also trigger a sharp rise in overseas investment.
The Chinese are already the biggest foreign buyers of homes in the United States, accounting for a quarter of all foreign buyers by value in the year to the end of March, with a record €28 billion according to the National Association of Realtors. And Chinese property companies must be looking at euro zone properties in places like Ireland.
The impact of the property bubble bursting last year and in the first half of this year in China has been powerful.
The property market in China is hard to read, partially because so much of what is going on here is happening for the first time, and policies are still being written, but fewer property starts and weaker construction has dragged down the country’s industrial sector and impacted on GDP expansion, feeding into a decline in imports and commodity prices, a rise in non-performing loans and growing deflationary pressure.
There has reportedly been an increase in building as developers step up launches in response.
In Wuhan, 25 new projects as well as 32 existing ones will meet the market in September, compared with 14 new schemes last month. Hunan province’s Changsha will see some 40 projects for sale this month, the most on a monthly basis so far this year.
