Photo: China Photos/Getty Images
China’s State Council has issued a notice to relax rules on Hukou – residency permits. The notice encourages rural residents to settle down in towns and small cities, not just big cities that are already overcrowded.And SocGen analyst Wei Yao, thinks this could be good for China’s property market:
“In the near term, the new rule is probably positive to the housing sector as well. It is a highly skilled move from the central government who intends to keep curbing property speculation and maintain stable growth momentum at the same time.”
In 2011, China’s urban population exceeded its rural population for the first time. But a third of its urban residents were denied a residency permit which gives them access to urban social security schemes and access to better education.
A lack of such welfare benefits obviously acts as a deterrent to those looking to purchase homes. Naturally, a relaxation in the rules governing Hukou could then support urbanization in China.
While this action is positive, it isn’t necessarily a comprehensive fix to China’s slowing housing market. According to Yao:
“The relaxed Hukou policy could effectively expand the housing demand in lower-tier cities, but a majority of the 46 cities with housing purchase restrictions (HPRs) is not within the scope. Therefore, we still need to answer two important questions before calling the bottom in the housing market. First, will new urban households step into a down market? And second, will developers increase investment and construction with the record high level of inventories?”
For now, big cities like Beijing, Shanghai, Chongquing continue to control the size of their population. But county-level cities are allowing those with legal and stable jobs, and residence to apply for Hukou. Those who hold legal and stable jobs, as well as residence in Prefectural-level cities for three years, can apply for Hukou there.
This chart from SocGen shows the increase in China’s urbanization rate starting in the 80s. It also gives an idea of what this could mean for its property market:
Photo: Societe Generale
Don’t Miss: GMO – Here’s A Three Tier Way To Short China >
NOW WATCH: Money & Markets videos
Business Insider Emails & Alerts
Site highlights each day to your inbox.