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Mortgage easing helps property market stabilize
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THE Chinese property market is showing signs of stabilizing as home sales bottom out after months of falling, thanks to a broader-than-expected relaxation of mortgage rules.
There are signs the market sentiment is also improving. An increasing number of potential home buyers have visited sales offices of new housing projects or real estate agencies since September 30, when the Chinese central bank announced the easing of mortgage rules.
Bian Ting, an agent at a northern Beijing outlet of China’s largest real estate broker chain Homelink, says she clearly felt the fallout of the policy change during the recently concluded week-long National Day holiday.
“Many people came to us during the holiday. Some even dropped travel plans and asked us to show them apartments,” she said.
Some of them were encouraged by the mortgage rule easing and planned to buy a second home. More than 20 potential home buyers had also handed in a purchase intention payment to her, Bian said.
In the seven days, her outlet brokered over 20 transactions, equivalent to the total sales in the previous two months. The property market sentiment is changing, she observed.
The mortgage rule easing has expanded the pool of eligible home buyers applying for mortgages and increased the amount they can borrow by categorizing second home buyers who have fully repaid existing loans as first-time home buyers.
According to the central bank announcement, a mortgage on a second home will be treated as a first mortgage if the buyer has no other outstanding mortgages. As a result, people who wish to buy a second home will enjoy the same 30-percent down-payment required of first-time home buyers, instead of the original 60 to 70 percent down-payment.
They will also be allowed interest rates as low as 70 percent of the 6.55-percent benchmark mortgage rate, instead of paying a 10 percent premium on top of the benchmark rate as required previously.
Easing measures will particularly support the robust growth in demand from home buyers who intend to acquire better properties to improve living conditions because upgraders are able to enjoy benefits of a mortgage as first-time buyers, rating agency Fitch said in a latest industry report.
Zhang Xu, an analyst with Homelink, said the central bank’s policy adjustment first and foremost is making a strong impact on people’s expectations of the Chinese property market.
Improving sentiment
Overall expectations are likely to reverse from being pessimistic to being neutral or even positive, and the improving sentiment is possible to help warm up the cool market, Zhang said.
The Chinese property market suffered a notable downturn this year. Weak market sentiment and home buyers’ confidence, sluggish sales, falling prices, and high and rising inventory had all weighed on the industry’s outlook and consumers’ confidence.
Official data showed prices of new homes in 68 out of 70 major Chinese cities fell month on month in August, compared with 64 in July.
Ding Zuyu, executive president of E-House Holding Ltd which is a New York-listed real estate services company in China, said the core change brought about by the central bank’s policy adjustment is the boost to potential home buyers’ confidence.
A serious dry-up in home buyers’ confidence, along with oversupply, has contributed to current property downturn in China, Ding said.
In the week-long holiday, the number of transactions brokered by E-House Holding doubled that of the previous week, and was close to that in 2013, he said.
A rising confidence is expected to unleash cumulative demand from potential home buyers in the current quarter ending in December, Ding said.
Nanjing, capital of Jiangsu Province which had lifted home purchase restrictions on September 21, reported total sales of 2,812 homes in the week-long holiday, a 47-percent increase year on year and a record high.
Despite the upbeat sales, the trend of falling house prices won’t be reversed in the near future, according to Chen Xiaotian, deputy secretary-general of the China Real Estate Association.
Based on the cycle of the property industry, overall house prices are likely to continue falling for the rest of this year, and prices could go up in the first half of 2015, Chen said.
Yang Hongxu, director of the Comprehensive Research Department at Shanghai Yiju Real Estate Research Institute, agreed.
House prices are still on a downward trend, and there are hefty inventories in many major cities. It will take some time before home buyers’ hopes turn to optimistic, he cautioned.
Yang expected house prices in four tier-1 cities and some tier-2 cities to stop falling and rebound before year-end.
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