Expected high economic growth, urbanization, first-time buyers, lifestyle aspirations will offset effect of tighter rules

Even after the May Day holiday, China's residential property market will remain upbeat as demand is expected to be firm during the rest of the year in spite of the tightening of home-buying rules, industry insiders said.

This could, however, still pose risks to those who may have entered the market purely for investment or speculative purposes, they said.

In late April, Tang Hua, senior director and head of China residential sales with Savills China, said she expects to see a surge in prospective homebuyers' visits to properties during the five-day Labor Day holiday.

"Speaking from experience, we believe potential homebuyers would include visits to properties as part of their holiday plan …(and) developers may also schedule promotional campaigns to attract buyers and secure deals."

Since the second half of last year, residential property markets in major Chinese cities have seen a quick pick-up as the spread of COVID-19 was better controlled in China.

In the first quarter of this year, nationwide residential property investments soared nearly 29 percent year-on-year to 2.06 trillion yuan ($320 billion).

Sales of homes in terms of gross floor area surged 68 percent year-on-year; new-home sales revenue surged 95.5 percent, said the National Bureau of Statistics.

"In the 20 major cities tracked by JLL, new residential property transaction volume maintained good momentum with 98 percent year-on-year growth in the first quarter, and grew 32 percent from the same period of 2019," said Sheng Xiuxiu, research director of JLL China residential sector.

Performance of the four top-tier cities was extraordinary. Their combined sales volume of new homes reached about 10.7 million square meters in the first three months, more than twice the level in the same period of last year, and up 96 percent over that of the same period of 2019, Sheng said.

"The double-digit growth in both investment and sales resulted from the low base of the same period of last year," said Liu Aihua, spokesperson for the NBS.

Various regions and related divisions are paying special attention to this new situation, and by conforming to the government guideline that "housing is for living in, and not for speculation", they have taken several effective measures to stabilize land prices, home prices and market expectations, Liu said.

Xie Chen, head of research with CBRE China, however, said the high-digit growth may not be sustainable over the long term, given various signs like the strengthening of financial regulations, tightened restrictions on home transactions and greater control over land supply.

Such fine-tuning, be it at the national level or the local level, is aimed at both eliminating speculation and better protecting the firm demand, Sheng said.

Lu Wenxi, a researcher with Centaline Shanghai, said residential markets in top-tier and hot spot cities in clusters like the ones in the Yangtze River Delta region, the Beijing-Tianjin-Hebei region and the Pearl River Delta region will likely remain stable this year, while other cities may see demand cooling down.

Since the beginning of this year, new property-related policies have targeted the land market, credit measures, purchase restrictions, and sales requirements among others.

The goal is to plug the loopholes in existing practices, and end speculation in the property markets across the country, said Xu Xiaole, chief market analyst with the Beike Research Institute.

Experts expect that more local governments will likely fine-tune property-related policies in the following months to stabilize their home markets.

Under the centralized land supply scheme, the supply shortage in major cities would be considerably eased, and it will further drive land prices and home prices to a more rational level, said Xu.

Expectations that mortgage loans will be scaled down and credit lines restricted might check investment demand, and help settle the home market, Xu said.

With regard to the high frequency of tightening measures, the home market is on the right track of cooling down, said Lu.

Tang Hua with Savills China said purchasing, selling and lending restrictions are unlikely to ease in the near term.

"Given the varying conditions of different cities, hot cities and other hot areas may see minor policy adjustments, such as subsidies for talent, and a new limit on the number of land sales to three a year, to allow some flexibility in implementing regulations."

Currently, transaction volume is still under pressure due to financial regulations and tight credit lines, but the home market will remain positive considering China's economic growth, the ongoing urbanization, and the steady demand from first-time buyers and those seeking better living conditions, according to Xie.

Vincent H. S. Lo, chairman of Shui On Land, said although the road ahead is not easy, he is certain that this year will be a better year.

Shui On Land reported its contracted sales of residential properties increased 69 percent year-on-year to 21.2 billion yuan in 2020.

"The property market in the following part of the year would grow steadily and healthily," said Xie.

Experts suggested the market adjustment may provide good opportunities for homebuyers.

"Any property bought for living will likely be held for the long term. Since the value of residential property will likely rise along with China's economic growth, homebuyers will think purchasing property early is a better choice," said Wei Feng Yu, director of the Shanghai branch of Taipei-based Sinyi Realty.

According to Wei, an apartment in Shanghai where the owner lives in for about seven to eight years can see average annual value appreciation of between 5 percent and 8 percent, which is regarded as healthy and reasonable.

"Homebuyers should pay close attention to the latest policies. That would help them to understand their preferences and find their ideal homes easier," said Chen Sheng, president of the China Real Estate Data Academy,

Agreed Xu of the Beike Research Institute. "After a rational analysis of one's urgency and loan repayment ability, homebuyers could make their decisions accordingly when their preferred homes are available－and returns on investment or speculation should not be the purpose of homebuying," said Xu.

The development of more affordable housing and rental housing would help establish a new home market pattern, which will ensure the long-term stability and health of China's real estate market, said Liu of the NBS.

The central government is determined to make market stability the cornerstone of property industry regulation this year and for the coming five years, said Xie.