Several large Chinese cities have recently reversed their stance on the country's tight property buying restrictions. Their response comes as cracks in China's domestic market begin to emerge, posing a threat to the country's overall growth rate. Apartments
Over the last week, there has been a whirlwind of activity as local politicians respond to the stagnant markets. Over that time, four cities have eased limits on home purchases or implemented policies that encourage them. This month, more cities are likely to follow suit.
That's a bold move in the face of Beijing's pressure to rein in soaring home prices and rampant speculation. The first moves to relax home-purchase limits, just over two years ago, saw local officials (in the towns of Foshan and Wuhu) quickly backtrack after being pressed by central policymakers.
This time, there's no such strain. "The issue is no longer 'if' or 'when,' but rather 'how much,' as a team of Nomura analysts led by Zhiwei Zhang wrote in a May 5 article, noting that the process has already begun."
The number of people buying houses is steadily decreasing, and land sales are also declining. This demonstrates that developers are being more vigilant at a time when banks are making it difficult for them to borrow. Also home prices, which had been steadily and for a long time, are beginning to decline.
According to Nomura, which expects further policy easing later this month as projects irritate current buyers by lowering costs, local action is insufficient. Housing and land sales provide a significant portion of local government revenue in China.
Zhang's team predicts that unless the central government eases lending, declining real estate investment would shave a complete percentage point off the world's second-largest economy's entire gross domestic product. They predict that without more money in the economy, the 7.7% growth rate of 2013 would fall to 6.7 percent in 2014.
This week, a patchwork of local-level easing has been implemented in an attempt to support depressed markets.
On Monday, the Yangtze River port of Tongling in Anhui Province, close to Shanghai, announced a tax break for first-time buyers. It also lowered downpayments from 30% to 20%, as well as streamlining the property-buying process.
On the same day, a city official in Ningbo, a port city just south of Shanghai across Hangzhou Bay, said the city would loosen home-purchase restrictions by treating someone who does not own another property in any of the city's districts as a "first-time buyer" in that district - even if they own homes elsewhere in the city.
At the end of April, a government official in Tianjin, China's vast port city that serves Beijing, began allowing buyers of price-capped homes to put down just 10% and get a 70% mortgage, with the developer keeping the remaining 20% of the house, which the buyer would later buy back. It also stated that anyone can buy in the Binhai district as long as they do not own a home there already, regardless of how many other properties they own.
In terms of home buying, Nanning, in China's far south near the Vietnam border, has declared that residents of five neighboring cities will be counted as "locals." Their citizens were regarded as out-of-towners. Most major cities require residents to reside in the city for at least three years before purchasing a home.
With Hangzhou and Wuxi, the total number of cities that have lifted home-purchase restrictions since late April has risen to six, with more on the way. At the time, one developer said it was pointless for Nanning to make its proposals public because "other local governments would almost certainly enforce under the table."
Hangzhou, famous for its West Lake and as a day trip from Shanghai, has begun providing cash and subsidies to any citizen forced to move, rather than simply arranging a replacement house.
Wuxi, a city just outside Shanghai, has gone the furthest in its efforts to revive the local housing market, granting resident status to non-local employees who purchase homes of at least 60 square meters (645 square feet), regardless of how long they have lived there.
At the end of last year, three more cities - Wenzhou, Wuhu, and Xuzhou - relaxed their own restrictions when it became apparent that this would be a tough year.
It appears to be getting harder as time goes on: in the first three months of this year, new home starts dropped by a record 25 percent, while property sales fell by 5%. Prices fell 0.5 percent across the country in March, the first drop in two years, and are dropping in roughly a quarter of China's major cities.
Luxury home specialists China Overseas Land & Investment recorded a 26 percent decrease in revenue in the first three months of 2014, compared to the same period the previous year. CR Land saw a 43 percent drop in revenue, while Vanke, the country's largest developer, saw a 5 percent drop.