December 19, 2018 / 5:47 AM / a month ago

Chinese city's property easing a test of central government resolve as economy slows

BEIJING/SHANGHAI (Reuters) - A city in eastern China has reversed a rule designed to curb real estate flipping, briefly boosting shares in property developers on Wednesday on speculation that more cities could follow suit as slowing sales weigh on the economy.

The policy reversal, announced by the city’s government, was the first of its kind since authorities around the country began taking steps about two years ago to control soaring house prices, according to state-run media.

It comes as China’s economy loses steam and new home price growth slows, particularly in smaller cities such as Heze. The biggest risks facing the sector include smaller government allotments next year for a massive slum redevelopment program, tight financing faced by property developers and a chilling effect on confidence in the event the Sino-U.S. trade war drags on.

In an announcement posted on its website on Tuesday, Heze’s municipal housing and urban-rural development bureau said it was cancelling provisions introduced last year that required purchasers of new or second-hand homes to hold them for two or three years, depending on their residency status, before being eligible to sell.

The bureau said in a separate statement, posted late on Wednesday, that it made the decision due to considerations that many local residents - particularly those who had received compensation from the government for their demolished homes - faced difficulties buying apartments as the ban had limited the supply of new homes.

“The previous policy had led to a surge in transaction prices of existing homes,” the bureau said. “After careful investigation, we’ve decided to scrap the rule to prevent price fluctuations and the stable development of the market.”

Heze is not included in an official home price index that surveys 70 major cities in China. Data from real estate agency Anjuke showed its second-home prices rose 7 percent in December from a year earlier.

“The policy change itself is quite limited in driving up sales but it sent a strong easing signal,” wrote analysts at Hua Chuang Securities, adding they expected “gradually better policy environment” in the future.

The move by Heze - a city of more than 8 million in the coastal Shandong province - will also test the central government’s resolve in keeping the frothy sector in check, some analysts say. President Xi Jinping had vowed this year to stop price growth in the near-three-year boom.

Yang Hongxu, head of property consultancy E-House China R&D Institute, said Heze’s policy deregulation is likely to be called off with mounting pressure from its higher-ups.

In previous property cycles, attempts to ease property curbs by regional governments were halted by the central authorities as they continued to crack down on real estate speculation.

The semi-official China News Service and the newspaper The Paper reported it was the first clear case of a city doing away with measures that had been introduced in recent years to restrict home sales.

Growth in China’s new home prices has slowed recently but marked its 43rd straight month of increase in November, up 9.3 percent year-on-year, official data showed.

A recent Reuters poll showed most economists believe China’s regional and municipal governments will loosen curbs on buyers next year as their revenue from real estate shrinks. However, Yang, from the property consultancy, said it would be premature to do so now as China is still going through a “stabilizing period”.

The Heze housing bureau told state-owned Securities Times authorities at the bureau were meeting to study the situation as they had been asked by the Shandong provincial housing bureau for an explanation for the policy change.

Officials at the Shandong provincial housing bureau, in an interview with a local newspaper, said they were still investigating as they were not aware of Heze’s policy change, while stressing it should be seen as an isolated case.

Repeated phone calls by Reuters to the Heze housing bureau and the Shandong provincial housing bureau were not answered. The housing ministry referred to responses by local authorities.

The CSI300 Real Estate Index .CSI300REI gained as much 2 percent before closing 0.5 percent lower from the previous day, while the broader CSI300 Index was down nearly 1.2 percent.

Editing by Sam Holmes and Shri Navaratnam

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