Caixin View: Don’t Look for Property Boom in Year of the Pig

As more cities eased restrictions on local property markets in December, it seemed 2018 could mark the end of a period of tight regulation aimed at controlling housing inflation. In mid-December, Heze, a small city in East China’s Shandong province, cancelled rules prohibiting homeowners from selling their properties for two years after purchase. Such rules were designed to prevent the property market from overheating. But as both the economy and property market have cooled, such measures were deemed obsolete by Heze and a few other cities.

Banks have also begun providing lower interest rates on mortgages. Some banks in Shanghai, Guangzhou, Chengdu and Chongqing are offering mortgage rates to first-time homebuyers lower than the five-year benchmark rate of 4.9% set by China’s central bank

Moreover, even the Ministry of Housing and Urban-Rural Development has softened the tone of its policy direction for 2019. Although the ministry reiterated its pledge to curb property market risks, some of the tough language has recently been dropped.

Despite all these developments, we do not think an overall easing for the property market is coming in 2019. Instead, these moves simply show the recently concluded Central Economic Work Conference has given property regulators some freedom to fine-tune policy according to local conditions. The property market in China varies considerably from city to city. While property markets in some cities remain hot, others are facing dropping sales and falling prices. So it is natural for different cities to have different policy stances, and we also expect this divergence to widen in 2019.

Analysts generally think that 2019 will be a tough year for the property sector. We also think the above-mentioned policy adjustments probably won’t translate to an overall boom for China’s property market in the short term. There are two reasons for that.

First, the recent adjustments are coming on a city-by-city basis, rather than nationwide. As a result, they are probably not sufficient to boost the national property market as a whole. Second, since homebuyer sentiment is much more rational now after years of tight regulation, these policy tweaks will not spark much new speculation. A survey by CEBM, Caixin’s think-tank, showed that homebuyers are still in a wait-and-see mood. Many are looking forward to more policy easing in the future months and won’t start buying just yet.

In terms of seasonality, the Spring Festival period is traditionally a low season for the Chinese property market. We expect it will be the same this year, and demand in the January-February period will be weak as usual. But if more easing comes in early 2019, March could be the first peak for the property market next year. We’re unlikely to see any major uptick before that.

Calendar

January 2: Caixin releases Caixin China General Manufacturing PMI for December

January 4: Caixin releases Caixin China General Services PMI and Caixin China Composite PMI for December

January 7: State Administration of Foreign Exchange releases foreign exchange reserves data