China’s housing market cools down amid tight regulations to combat speculation
Trend to pressure firms, but help prices return to rational levels
Published: Sep 22, 2021 10:08 PM


China might not have its customary "gold and silver months" for home sales this year, which are normally in September and October, experts predicted, as recent data showed a continued cooling trend triggered by a mixture of factors, including tightened government regulations and Evergrande's default concerns. 

During the recent Mid-Autumn Festival, 26 major Chinese cities, including Beijing, saw housing turnover slump compared with the same period last year, the Securities Daily newspaper reported, citing data from a report compiled by house information website

The data again attested to a cooling trend in China's property market that started around April. According to data from the National Bureau of Statistics (NBS), new commercial housing prices in first-tier cities rose 0.3 percent in August compared with July. The month-on-month gain in July was 0.4 percent. 

The NBS data also showed that of China's 70 major cities, 20 saw new commercial house prices decrease month-on-month in August, compared with only 16 in the previous month. 

Xue Jianxiong, president of a Shanghai-based asset management firm, told the Global Times that China's housing turnover began to edge down around April as a result of tightening government regulations and a coronavirus-triggered economic slowdown. 

"Some cities, like Shanghai, have seen house trading volume edge down, but prices are stable as those cities are still in the primary stage of market adjustment. But generally, the housing market is in a period of correction, both in terms of prices and trading volume," Xue said. 

Experts mainly attributed the situation to the country's tightening policies, including a reported government order that developers' land purchases can't exceed 40 percent of their yearly sales revenues, as well as limits on banks' loans to developers and individuals. 

Zhang Ning, a research fellow of the National Academy of Economic Strategy at the Chinese Academy of Social Sciences, said that it took only about one month for buyers to apply for mortgages in the first half of this year, but it now takes two or three months as banks have cut individual house loan quotas. 

"Those policies have restricted capital flows to China's developers. As a result, many are experiencing tight liquidity and have to lower selling prices to bring cash in," Zhang told the Global Times on Wednesday. 

The Chinese government has moved to put a ceiling on domestic house prices after the market turned red hot in recent years, sending many cities' prices to sky-high levels. This year, central and local governments rolled out as many as 400 measures to regulate the housing market, setting a record, according to media reports. 

Apart from the influence of macro policies, the recent financial crisis of Chinese property giant Evergrande also prompted some concerns, analysts said.

Evergrande is under immense pressure after the Hong Kong-listed developer was exposed to have difficulties in repaying a mountain of liabilities that exceed $300 billion after years of borrowing. The incident has had serious repercussions, with some foreign media hyping up the company's situation and warning it might turn into "China's Lehman moment."

According to Zhang, in the past the government had to stop capital from excessively flowing into the housing market, but "accidents" like the Evergrande case will prompt investors to bypass the housing sector voluntarily. 

"The Evergrande incident will cause a readjustment of market valuations of China's housing shares, and it will also speed up the sector's cooling trend by acting as a negative factor on market confidence," Zhang told the Global Times. 

Evergrande announced that it would start to repay the interest on its 4 billion yuan ($619 million) bond starting on Thursday. 

Yan Yuejin, research director at Shanghai-based E-house China R&D Institute, told the Global Times that considering the current market response, China's home- buying demand will likely edge down further. 

"China's gold and silver months for housing sales are unlikely to happen this year, but given the widely discussed policy fine tuning, possibilities exist that demand will rebound to a certain extent after November," Yan said. 

He also noted that the Evergrande incident will trigger some new problems, including how property financing policies would be carried out. 

Zhang nevertheless stressed that cooling demand for housing is "not necessarily a bad thing," as it can also help the country's high-flying housing prices to return to rational levels.