Fitch Ratings states that the recent relaxation of real estate transaction rules by the Chinese regime is unlikely to have a significant impact on sales of new homes.
A report by Fitch Ratings explains that although the Chinese communist regime has eased some restrictions on home transactions in cities, it is expected to have minimal effects on sales of new homes.
In response to the real estate crisis, authorities in China’s first-tier cities relaxed mortgage regulations for first-time home buyers, resulting in a surge in sales during the policy’s first week of implementation, as noted by Fitch Ratings on Sept. 25.
However, Fitch Ratings highlights that the market quickly cooled down within a few days as pent-up demand in top-tier cities was exhausted.
September and October are traditionally the peak season for home sales in China. Fitch Ratings predicts that local authorities in many Chinese cities will further ease housing transaction restrictions before the end of September in an attempt to boost sales.
On Sept. 20, Guangzhou, a first-tier city in China, relaxed home purchase regulations for non-local residents in non-core areas. Residents who have paid local personal income tax for at least 2 consecutive years are now eligible to buy a home. Previously, non-local 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 emphasizes that while the removal of some restrictions might have a short-term impact on the sales of existing homes, it is unlikely to boost the sales of new homes due to homebuyers’ concerns about the quality and delivery of pre-sold homes, particularly those projects by private developers.
Fitch Ratings notes that the relaxation of transaction policies may further concentrate demand in larger cities, where property sales are typically more affected by policy constraints. “This will contribute minimally to national new homes sales due to the small share of top-tier cities,” the report states.
The report suggests that the policy change is unlikely to have a significant impact on most medium-sized and small cities.
Oversupply and Low Willingness to Buy
At least a dozen Chinese cities have also recently relaxed price restrictions, but these efforts have seen little success. “People continue to sit on the fence because they expect prices to go even lower,” said Jens Presthus, an associate director at consulting firm Global Counsel, to The Wall Street Journal. “This tends to be a self-reinforcing trend.”