Loosening curbs may hinder restructuring in China’s property sector, Fitch says

By Cherry Cao | August 7, 2014, Thursday |

Online Edition

THE loosening of property curbs and the easing of monetary policies since the second quarter of this year may encourage speculation on residential property again and may not be conducive for the positive restructuring of China's homebuilding sector in the long run, a latest Fitch Ratings report warned.

The recent relaxation of home purchase restrictions in a growing number of Chinese cities may fail to boost sales meaningfully in light of the prevailing negative sentiment among potential buyers, Fitch said.

Further relaxation, without the introduction of other speculation-cooling measures, may pose risks of encouraging and re-igniting housing speculation in the long term, as was experienced in 2009, the global rating agency said.

The recent easing policies may also extend the life of uncompetitive developers, and therefore delay and set back the progress of restructuring and consolidating the country's homebuilding sector. In the first half of this year, some uncompetitive developers have exited the industry, allowing players with stronger operations and finances to survive, a trend that may lead to the healthy long-term development of the sector, according to the Fitch report.

Since April this year, home purchase restriction, an austerity measure first introduced in Beijing in 2010 and expanded later in 2011 to more than 40 cities around the country to rein in housing speculation, has been lifted, either completely or conditionally, in some 30 cities.

Local governments, with tolerance from the central government, struggled to fight against continuously sluggish housing sales which may pose risks to their economic growth.

The value of new homes sold across the country in the first half of this year dropped 9.2 percent from the same period a year ago to 2.56 trillion yuan (US$412.9 billion), the National Bureau of Statistics said last month. By volume, they sank 7.8 percent from a year ago to 256.3 million square meters.

An earlier Moody's Investor Service report forecast that a deeper property downturn could shave between 1.5 and 2 percentage points off China's GDP growth in the absence of an offsetting policy response.

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Loosening curbs may hinder restructuring in China’s property sector, Fitch says

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