Beijing’s latest property stimulus package has failed to stop a downward spiral in home transactions and prices in mainland China’s lower-tier cities. This performance could prompt top regulators to roll out stronger incentives to reinvigorate the weak market.
Data compiled by the China Real Estate Index System (CREIS) shows that prices in the country’s third- and fourth-tier cities dropped 2 per cent year on year in October for new homes, while prices of lived-in residential units slumped 6.5 per cent. This occurred despite a series of market-boosting measures introduced starting in late August.
In August, the National Financial Regulatory Administration (NFRA) extended mortgage terms to facilitate homebuying for middle- and low-income consumers. These longer repayment cycles, moving from 30 to 40 years, can save a homebuyer thousands of yuan per month. In September, China’s central bank, the finance ministry, and the NFRA announced a mortgage interest subsidy policy for first-time homebuyers to take effect from October 1.
Mortgage loans with principals of up to 1 million yuan (US$149,930) are eligible for the subsidy, with fiscal authorities providing an annualised interest subsidy of 1 percentage point for a maximum of five years.
Yan Yuejin, vice-president of the E‑house China Research and Development Institute, stated that the incentives proved to be effective in top-tier cities like Shanghai because some pent-up housing demand was immediately released after the new policies were enforced. However, Yan Yuejin noted that in less developed cities, local consumers are still expecting to see a full recovery of the economy before making home purchase decisions.
In Luoyang, a homeowner named Chen Hui plans to sell her flat and stated that homebuying interest appears to be weak in cities like Luoyang. Chen Hui said, “I will have to offer a 15 per cent price cut to get the home sold.” Chen Hui decided to cash out her residential unit after hearing about Beijing’s stimulus policies. While the 15 per cent discount on her two-bedroom unit bought 10 years ago was acceptable because it could still be traded at a premium, Chen Hui expressed worries that home prices will go downhill in the coming years. She noted that lots of would-be homebuyers are playing a wait-and-see game, betting on a fresh round of incentives from the government, such as a bigger subsidy.
