China's property market feeling the stimulus effect

Beijing

CHINA'S year-long campaign of targeted stimulus to stoke the economy is making its presence felt in the property market, a sector that has the power to cement a recovery and improve the fiscal health of local authorities.

Project sales of major home builders rebounded in March after contracting in the first two months of 2019, thanks to easier financing from banks, looser restrictions on home buying and lower mortgage rates.

Beijing's move this week to encourage citizens in rural regions to move to urban areas is also a timely boost, with dozens of smaller cities being told to scrap rules on local hukou residency permits - curbs that have been used to keep a lid on property prices since 2016.

A re-accelerating real estate sector could help bring forward stabilisation in China's economy after a bruising few quarters during which trade-war doubts and a cyclical slowdown combined to brake output.

Faster home sales and higher prices have the potential to boost demand along the entire supply chain from steel to white goods. Rising land prices, meanwhile, can help top up government coffers depleted by tax cuts.

"The property market has defied everyone's guesses at the start of the year," said Ding Zuyu, co-president of property consultancy E-House.

"The key reason is that liquidity became abundant starting January, and what ailed developers last year - cash flow pressure - seems to be behind us."

While data released by the National Bureau of Statistics still paints a downbeat picture, there are signs of recovery from high-frequency indicators: Home builders are more active in land purchasing, and land prices in bigger cities have surged. Developers also received faster cash proceeds from banks in January and February, according to Bloomberg calculation based on official data.

Home sales in tier-1 cities jumped by 48 per cent in March from a year earlier, after a 35 per cent increase in February and 20 per cent in January, according to China Real Estate Information Corp.

Interest rates for new-home mortgages have declined for a third straight month in February, down 3 basis points from January.

It's a slice of good news following Chinese President Xi Jinping's late 2016 campaign to contain financial risks and asset bubbles that weighed on the sector and in turn, on the consumption of housing-related items such as furniture, home appliances and automobiles.

That had the effect of dragging overall retail-sales growth to a multi-year low.

"We may see the property market stabilising soon" if more local governments join the camp and ease property policies, supporting consumer confidence and household consumption, according to Wang Tao, chief China economist at UBS Group in Hong Kong.

Local authorities will also benefit from the market upside with increasing land revenues, improving their funding outlook amid the most ambitious tax cut commitment in years.

Funding from land sales contracted by 5.3 per cent in the first two months of the year, far below the annual target of expansion at 15.3 per cent, according to the Ministry of Finance. Provinces and cities are being asked to cut unnecessary spending to keep a tight balance between revenue and expenditure. BLOOMBERG