Fitch Ratings recently released a report stating that the Chinese communist regime’s relaxation of some restrictions on home transactions is unlikely to have a significant impact on sales of new homes. The report, published on September 25, noted that in response to the real estate crisis, authorities in China’s first-tier cities recently relaxed mortgage regulations for first-time home buyers. This led to a surge in sales during the first week of implementation, with Beijing experiencing a peak in home sales. However, the market quickly cooled off as pent-up demand in these cities was exhausted.
Fitch Ratings believes that local authorities in many Chinese cities will continue to ease housing transaction restrictions before the end of September to try to boost sales. For example, Guangzhou, a first-tier city, further relaxed home purchase regulations for non-local residents in non-core areas. Previously, non-local residents were required to pay individual income tax for five consecutive years before they could purchase real estate, but now residents who have paid local personal income tax for at least two consecutive years are eligible to buy a home. The report anticipates that more top-tier cities will follow suit.
While the removal of some restrictions may have a short-term impact on the sales of existing homes, Fitch Ratings does not expect it to significantly boost sales of new homes. The report highlights that concerns over the delivery and quality of pre-sold homes, particularly those developed by private developers, will continue to affect the new residential projects. Fitch Ratings also notes that the easing of transaction policies may concentrate demand in larger cities, which will have minimal impact on national new home sales due to the small share of top-tier cities in the total market.
The report further suggests that developers with significant landbanks in lower-tier cities or non-core districts of mid-tier cities may face anemic new home sales and negative operating cash flows for a prolonged period if the trend of demand channeling into top-tier cities persists.
The oversupply of homes is a major issue facing the Chinese real estate market, according to He Keng, former deputy director of the Chinese regime’s National Bureau of Statistics. Speaking at a conference on September 23, He Keng mentioned that the number of vacant homes in China is a cause for concern, with estimates ranging from being able to accommodate 3 billion people to surpassing the needs of the country’s official population of 1.4 billion. Additionally, many people are hesitant to purchase homes due to the expectation of further price declines, perpetuating a self-reinforcing trend.