CCP’s Policy Changes Unlikely to Boost China’s New Home Sales: Fitch Ratings

The skyline of Chongqing in southwest China's Chongqing Municipality on March 22, 2019. Wang Zhao/AFP via Getty Images

A recent report by leading credit rating firm Fitch Ratings says that although the Chinese communist regime has relaxed some restrictions on home transactions in cities, the policy is likely to have little effect on sales of new homes.

Fitch Ratings said on Sept. 25 that in response to the real estate crisis, authorities in China’s first-tier cities recently relaxed mortgage regulations for first-time home buyers, driving a short sales surge in the policy’s first week of implementation.

The report noted that in Beijing, home sales peaked in the first week after the definition of first-time home buyers was expanded on Sept. 1. According to data from leading Chinese real estate broker Centaline, 3,500 new homes and 5,000 second-hand homes were sold that week—about half of all August sales.

However, Fitch Ratings pointed out that the market quickly cooled again in a few days as pent-up demand in top-tier cities was exhausted.

September and October are the traditional peak season for home sales in China. Fitch Ratings believes that local authorities in many Chinese cities will ease housing transaction restrictions before the end of September in an attempt to boost sales.

Guangzhou, a first-tier city in China, further relaxed home purchase regulations for nonlocal residents in noncore areas on Sept. 20. Residents who have paid local personal income tax for at least two consecutive years are now eligible to buy a home. Previously, nonlocal residents were required to pay individual income tax for five consecutive years before they could purchase real estate. Fitch Ratings believes that more top-tier cities will follow suit.

The report pointed out that the removal of some of the restrictions might have a short-term effect on the sales of existing homes but is unlikely to boost the sales of new homes, as “homebuyers’ concerns over the delivery of pre-sold homes in good quality, especially projects by private developers, will continue to cast a shadow over most new residential projects.”

Unfinished apartment buildings stand at a residential complex developed by Jiadengbao Real Estate in Guilin, Guangxi Zhuang region, China, on Sept. 17, 2022. Eduardo Baptista/Reuters

Fitch Ratings noted that the easing of transaction policies may further concentrate demand in larger cities, whose property sales are usually more constrained by policy.

“This will add little to national new homes given top-tier cities’ small share in total,” the firm stated.

The report anticipated that the policy change may have little impact on most middle-sized and small cities.

“Developers with significant landbanks in lower-tier cities or non-core districts of mid-tier cities are likely to face anemic new home sales and negative operating cash flows for a prolonged period if the trend of demand channeling into top-tier cities and prime locations persists,” Fitch Ratings said.

Oversupply and Low Willingness to Buy

At least a dozen Chinese cities have also recently loosened price restrictions. This, however, has brought little success as “people continue to sit on the fence because they expect prices to go even lower,” Jens Presthus, an associate director at consulting firm Global Counsel, told The Wall Street Journal.

“This tends to be a self-reinforcing trend.”

He Keng, former deputy director of the Chinese regime’s National Bureau of Statistics, said at the China Real Economy Development Conference in Dongguan on Sept. 23 that oversupply is one of the major issues facing Chinese real estate.

“How many vacant homes are there now? The figures given by each expert are very different. The maximum is that the current number of vacant homes is enough to accommodate 3 billion people,” Mr. He said. “This estimate may be a bit high, but it may be more than what 1.4 billion people [the official number of China’s population] need to live in. People with purchasing power will definitely not be able to buy them all.”