Chinese policy makers eased property restrictions for the first time since the global financial crisis as a real-estate slump’s threat to economic growth overtakes worries about housing affordability.
People applying for a loan to buy a second home may get lower down payments and mortgage rates that were previously only available to first-time home buyers so long as they have paid off their initial mortgage, the People’s Bank of China said in a statement on its website yesterday. The central bank also eased a ban on mortgages for people buying a third home.
The action marks a reversal in a four-year tightening campaign, as slowing property investment and industrial production raise risks that 2014 economic growth will drift too far below Premier Li Keqiang’s target of about 7.5 percent. The government’s factory gauge was unchanged in September from the previous month, suggesting manufacturing remains subdued, a report showed today.
“Economic growth remains weak on sluggish domestic demand,” said Chang Jian, chief China economist at Barclays Plc in Hong Kong. The property easing will take a few months to show positive effects on manufacturing, where momentum “may start to see a slight increase at the end of this year,” she said.
The Purchasing Managers’ Index from the National Bureau of Statistics and China Federation of Logistics and Purchasing was at 51.1 in September, the same reading as in August. A similar gauge from HSBC Holdings Plc and Markit Economics was unchanged at 50.2, a report yesterday showed. Readings above 50 signal expansion.
The Australian dollar extended a drop after the PMI, while the MSCI Asia Pacific Index of stocks was down 0.3 percent. Hong Kong’s markets are shut today and tomorrow, while China’s are closed from today through Oct. 7 for holidays.
Under existing rules, first-home buyers need to pay a 30 percent down payment, rather than at least 60 percent required for a second home. They can also get as much as a 30 percent discount on mortgage rates from the central bank benchmark.
Banks should decide “prudently” on the down payment and interest rates for loans to applicants buying a third home, the central bank said in the statement.
The policy “clearly shows that there’s a bottom line in tolerating an economic slowdown,” said Shen Jianguang, chief Asia economist at Mizuho Securities Asia Ltd. in Hong Kong. “The move greatly reduced risks of a hard landing.”
Over a four-year campaign to curb property speculation that had driven up housing prices, China had raised the minimum down payment for second homes to 60 percent, and suspended third-home mortgages.
Beijing, Shanghai, Guangzhou and Shenzhen, known as China’s first-tier cities, increased second-home down-payment requirements further to 70 percent last year after prices jumped.
“The nature of this relaxation is to drill extra demand outside the pool of first home purchasers,” Venant Chiang, Hong Kong-based property analyst at Jefferies Group LLC, wrote in a note. “We expect most China property stocks will rebound.”
Xinyuan Real Estate Co., a Chinese developer listed in New York, rose 1.4 percent, the most in almost a month, to close at $2.94 yesterday. Leju Holdings Ltd., a Chinese home-listing website, jumped 6 percent, the most since Sept. 3, to $12.85.
Home sales plunged 11 percent in the first eight months from a year earlier, according to government data. Home prices dropped in August from July in 68 of 70 cities tracked by the government, including in Beijing and Shanghai. That was the most since January 2011, when the statistics bureau changed the way it compiles the data.
October home-sales volume will probably be “significantly higher” than September’s in major cities, Jinsong Du, a Hong Kong-based property analyst at Credit Suisse Group AG, said in a note. “However, I don’t expect a sudden housing-inventory drop, or housing-price increase in the near term.”
All but five of the 46 cities that imposed limits on home ownership since 2010 have removed or eased such restrictions, according to China real-estate agency Centaline Group.
Chinese residents had been becoming more pessimistic about housing-price gains in the third quarter compared with the previous two quarters, according to a survey of 5,000 households conducted by the Survey and Research Center for China Household Finance, released this week.
Policies had been ineffective in boosting housing prices, the center said in a statement, likening them to “a cup of water trying to extinguish a wooden cart on fire.”
The announcement comes two weeks after news that the PBOC injected 500 billion yuan ($81 billion) of three-month funds into the nation’s five largest banks, a government official familiar with the matter said at the time. The latest action suggests that the funds are earmarked for property-related loans, said Shen Jianguang, chief Asia economist at Mizuho Securities Asia Ltd. in Hong Kong.
Nomura Holdings Inc. estimated in a report last week that in a baseline scenario, property investment growth will slow by 8.5 percentage points in 2014 and reduce gross domestic product growth by 1.4 percentage points. Hua Changchun, the China economist for Nomura in Hong Kong, said by phone that yesterday’s policy action is “within expectations” and still falls into the baseline scenario.
Today’s PMI report showed positive signs in demand for exports and a wider gap between new orders and finished-goods inventory, and industrial-production growth probably improved in September, according to Tommy Xie, a Singapore-based economist at Oversea-Chinese Banking Corp. At the same time, the drop in a subindex points to “rising deflationary pressure in China’s producer prices,” he said in a note.
— With assistance by Dingmin Zhang, and Xin Zhou