- Nomura says China’s economic slowdown in likely to get worse early in the new year.
- In attempt to support economic activity, Nomura expects policymakers will juice the property market, rolling back many restrictions that have been introduced since 2016.
- There’s increasing evidence to suggest supportive measures are already being rolled out.
- Policymakers have often turned to the property market for a short-term fix when economic conditions have deteriorated.
China’s economic slowdown is likely to get worse next year, leaving little option but for Beijing to juice its property sector once again in order to support activity levels.
According to research analysts at Nomura, property restrictions that have been gradually been rolled out since 2016 are likely to removed.
“In our view, we are close to a nationwide property market easing, but we are not quite there yet,” Nomura said in a note released this week.
“With the expected worsening of the growth slowdown in H1 2019, Beijing may be under pressure to ditch most of these tightening measures after spring 2019 to stabilise growth.
“In a nutshell, we will need to wait for another two quarters before major nationwide property easing measures are introduced, including scrapping price controls and easing restrictions on home purchases and resales, especially in Tier-1 and Tier-2 cities.
Tier one and two cities are the largest of the large in China.
As Nomura points out, recent Chinese property data has not been all that stellar, coinciding with the slowdown in the broader economy in the September quarter OF this year.
“New home sales growth by floor space fell to -5.1% year-on-year (YoY) in November from -3.1% in October. Weighed on by weaker property sales and tighter credit conditions, developers land purchases significantly slowed too. According to the NBS, growth of land sales in volume terms fell to 8.1% YoY from 12.2% in October,” the bank says.
“Based on a sample of 100 cities, growth of land purchases in volume terms fell to -39.4% YoY in the first half of December from -19.8% in November.”
And those declines are subsequently weighing on local government revenues, along with reducing the need for increased infrastructure investment.
“The proceeds from land sales accounted for 23% of total local government fiscal revenue in 2017, while local governments are responsible for 90% of China’s infrastructure spending — so land sales have a significant impact on infrastructure investment,” Nomura says.
As for whether Nomura’s prediction that property restrictions will be rolled back aggressively next year, there’s already evidence that policymakers are moving to support the sector.
This list from the bank shows a timeline of supportive measures that have already been introduced.
- On 29 September, Xiamen relaxed its requirements for Hukou registration. This is the first time in eight years Hukou registration qualifications for Xiamen Island have been relaxed.
- On 23 November, Shenzhen’s housing authority released a proposal that would require developers to report any intended upward/downward adjustment of housing prices that would be more than 15% of the original reporting price.
- On 1 December, Wuhan residents were allowed to use their public housing funds saved outside the city to purchase housing in the city.
- On 18 December, the housing authority in Heze, a low-tier city in Shandong Province, removed restrictions on home resales and lowered the ratio of presale revenues under supervision. Quality developers are no longer subject to supervision, while for other developers the ratio has halved to 10%. Regarding property projects related to resettlement housing, the supervision quota may be even lower.
- On 19 December, according to Guangzhou’s Housing and Urban-Rural Construction Committee, the sale of commercial property built on land sold before 30 March 2017 is no longer limited to corporate entities.
- Home purchase restrictions were reported to be relaxed in parts of Zhuhai. According to the local housing agency, non-locals are now allowed to buy homes in the Jinwan and Doumen districts as long as they have paid social security tax for one year. In the past, the home purchases requirement for non-locals was set as five years of uninterrupted social security tax payments.
And Nomura says those measures are only the tip of the iceberg in terms of what’s to come.
“We believe more game-changing measures are yet to come as it will take Beijing a little longer to soften its stance on property market regulation,” it says.
“We expect Beijing to further tone down property sector regulations at high-level policymaking meetings, including the ongoing Central Economic Work Conference (CEWC), the National People’s Congress in early March 2019, and Politburo and State Council meetings in the months ahead.”
Although a rollback of property market restrictions will help support activity levels in the short-to-medium term, and with it financial market sentiment, it will do little to appease longer-term concerns that policymakers are merely kicking the can down the road in terms of more meaningful reforms to make economic growth more sustainable in the future.
If Nomura is right, many will see this as simply being a repeat of the property pump-priming episodes designed to provide a short-term fix seen so often in the past.
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