Chinese property stocks rallied after major cities eased restrictions on home purchases

Shares of Chinese property developers rallied after the main cities in mainland China adopted easing measures to boost homebuyer sentiment, followed by the central bank’s policy stimulus blitz.

The Guangzhou city government said in a news release on Sunday that all restrictions on home purchases would be lifted, starting Monday. Previously, migrant families were required to pay taxes or social insurance for at least six months in order to buy up to two houses, while one person was limited to one apartment.

The Shanghai government also reduced the required tax payment period to one year from three years. The city also lowered the down payment ratio for first homes to around 15%, while second homes to around 25%, above the national average ratio of 15%. The rules came into effect on Tuesday, according to a news release last Sunday.

The Shenzhen government has also eased the purchase limit – which limits local families to two houses and one person to one – allowing buyers to buy more apartments in certain districts. Migrant families with at least two children can now buy two houses, instead of one before, according to the statement.

The Hang Seng Land Property Index rose 8.36% on Monday morning, surpassing last week’s gain of more than 30%.

Shares of real estate developers listed in Hong Kong like Longfor Group Holdings, Hang Lung Property, China Resources Land were some of the biggest movers in the Hang Seng index, gaining 19.1%, 10.95% and 3.58%. China Overseas Land & Investment and China Vanke an increase of 5.06% and 12.89%.

Mainland China’s CSI 300 rose 6% Monday, after the index posted its best week in nearly 16 years on Friday. The CSI 300 Real Estate Index jumped over 7%.

The purchase restrictions could help lift property sales in first-tier cities – such as Beijing, Shanghai and Guangzhou – by a greater margin than other cities, said Allen Feng, associate director at Rhodium Group, pointing out that similar measures have not yet been implemented. can be done. other cities before.

That view was shared by Gary Ng, APAC economist at Natixis, who suggested the effect would be more limited in smaller cities “given higher inventory levels.” They are more likely to cause “stabilization” than retreat, Ng said.

The easing measures follow the central government’s call last week to combat the property slump last week. The authorities “must work to prevent the decline of the real estate market and spur a stable recovery,” according to a reading from the high-level meeting, chaired by Chinese President Xi Jinping.

The People’s Bank of China also reduced interest rates on existing individual mortgages by an average of 0.5 percentage points, and reduced the average down payment ratio for second home purchases to 15% from 25%.

Real estate once accounted for more than a quarter of China’s GDP, but has been in decline for years following Beijing’s crackdown on high-level lending in the sector in 2020.

China’s policymakers have stepped up support to ease household financial burdens and tackle the troubled real estate sector. But the previous steps did not lead to any meaningful change.

China may “need to speed up efforts to complete stalled construction projects or abandoned properties that have been sold” to boost confidence among potential home buyers and restore demand, said Erica Tay, director of macro research at Maybank Investment Banking Group, noting that only 4% of the floor space under construction this year has been completed.

“Swift follow-up of fiscal policy” is important, Nomura analysts led by Jizhou Dong said in a note on September 26, and “if introduced soon enough” they will act as tailwinds to stimulate domestic consumption and stabilize the property sector.

Homebuyer demand will slow down and mortgage growth is expected to stop contracting, said Natixis’ Ng, “but it will take longer, and measure with greater magnitude to see a clear overall rebound in the property market.”