Hunan City Reverses Course as Beijing Reaffirms Property Market Controls

It’s a new year already, but China’s housing regulators have reaffirmed their intention to keep a tight grip on the country’s housing market, as the second-largest city in Hunan province made a quick about-face after attempting to lift a cap on new housing prices in the city last week.

Hengyang, a city of 1.2 million people in central China, had announced on December 26th that, as of January 1st, it would be cancelling a year-old regulation that had required developers to submit pricing plans for new home sales for government approval, and which had forbidden homebuilders from raising prices thereafter.

In announcing the policy change, officials at Hengyang’s local Development and Reform Commission and housing bureau had indicated that they believed the regulation to no longer be necessary, as the city’s housing market had stabilised, and the change came as a number of cities have taken cautious steps to make it easier for developers to sell homes.

The judgment of local officials in Hengyang and other cities may not be in step with central authorities in Beijing, however, who last week reaffirmed their commitment to keep control over housing prices in 2019. And Hengyang’s decision to lift its price cap was rescinded within 24 hours.

Hunan City Tests Home Purchase Restrictions

In a notice its official website on December 27th, the Hengyang city government said that, due to its “unprecise judgement on the complexity to stabilize prices and incomplete knowledge of the expected continuation of the stable outlook… it had triggered market misunderstanding and online hype, which went against the initial intention.” The notice went on to say that it was rescinding its decision announced the previous day to lift the price caps on home sales.

Following the Hengyang reversal, other cities, including the Anhui provincial capital of Hefei, were quick to deny reports that they had relaxed home purchase restrictions. Local property agents in Anhui had earlier reported that city authorities would no longer enforce a ban on non-residents purchasing homes in the city, although no formal policy had been announced.

Guangzhou and Zhuhai Tweak Property Rules

Hengyang’s attempt at loosening restrictions on its property market came after other cities in China had tried out changes to policies designed to suppress housing demand.

Last month Guangzhou lifted a ban on sales to individuals of apartments at some projects, while also easing restrictions on use of provident funds for home purchases. And on December 19, Heze, a city of 8.3 million residents in Shandong province cancelled a holding requirement that forbade homeowners from reselling housing within two or three years from the time of purchase.

Zhuhai, a city bordering Macau, also last month started allowing non-locals to buy homes in two outlying districts if they had paid local social security funds for at least one year. In other districts, they have to have made five years of payments to be eligible.

With local governments in China reliant on income from selling land to property developers for as much as 75 percent of their revenues, city authorities have a vested financial interest in keeping home sales growing, and during previous property cycles central government authorities have eventually loosened demand suppression measures in the face of local government resistance and slowing economic growth.

However, despite the recent local government measures, analysts now characterise this batch of policy moves as minor adjustments against a central theme of market stabilization.

“There is always the delicate balance between local governments and Beijing: the former prioritize local property and broader economy as they relied on land sale and property-related taxes, while the latter is more concerned social stability,” said David Hong, Hong Kong head of research at property consultancy CRIC to South China Morning Post “For now, local governments are testing the waters,” he added.

Policymakers Reaffirm Market Curbs

The reversal in Hengyang may be a sign that these local tests may not be allowed to proceed very far from the central government line, at least for the time being.

At the Central Economic Work Conference, an annual gathering of China’s senior policymakers that sets out the government’s economic direction for the following year and which concluded on December 19th, Beijing reaffirmed its goal to establish a healthy and sustainable long term mechanism for the property market, and once again insisted that “houses are for living, not speculation.”

Then on December 24th, officials at China’s Ministry of Housing and Urban-Rural Development met to follow up on the work conference, with Minister Wang Menghui reaffirming to the leadership of the housing regulator that,  “Stable prices, stable prices and stable expectations” are the government’s primary goals for the housing market in 2019.

According to Zhang Dawei, chief analyst at Hong Kong-based property agency Centaline, the government is expected to maintain strict controls over the market in 2019, although some local markets may be allowed to make minor adjustments on a case by case basis. “If credit controls are not loosened up, the property market would unlikely see any substantial change in direction,” Zhang told the local media.