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Hangzhou, Xian lift curbs to boost demand, cut inventories

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More cities may follow in Hangzhou's footsteps, say

analysts

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China's biggest cities not expected to drop all curbs soon

By Liangping Gao and Ryan Woo

BEIJING, May 9 (Reuters) - Two Chinese provincial

capitals lifted all home purchase restrictions on Thursday to

lure buyers and shore up their sagging real estate markets,

raising the prospect of other megacities following suit.

As of May 9, Hangzhou and Xian will no longer vet the

eligibility of potential buyers, the cities' housing authorities

said in separate notices, shedding requirements previously

imposed to deter speculators and block buyers who are not legal

residents of the cities or local tax payers.

The last round of China's property boom in many cities ended

around 2020-2021 due to the pandemic and also strict borrowing

requirements imposed by regulators to contain the towering debts

accrued by developers.

Declining home prices in markets, including traditionally

hot locations such as Hangzhou, have since chilled buyer

sentiment, hitting a sector that once accounted for a quarter of

China's economic output.

Authorities have been ramping up measures to prop up the

troubled sector, but many of the policies have been piecemeal in

nature or have only a limited, short-term impact.

In Hangzhou, capital of wealthy Zhejiang province, new home

prices edged up 1.0% year-on-year in March, the slowest pace in

nearly six years, according to the latest data from China's

statistics bureau.

In April, the city's new home sales stood at 310,000 square

metres, slumping 75% year-on-year, a survey from real estate

firm CRIC showed.

Then, on April 30, a meeting of Communist Party leaders

called for measures to support the property sector, saying it

would improve policies to clear mounting housing inventories.

A day earlier, the southwestern city of Chengdu, home to

21.4 million residents and capital of Sichuan province, dropped

all home-buying limits.

Hangzhou is the first city to completely abolish purchase

restrictions after that meeting, said analyst Yan Yuejin at

E-house China Research and Development Institute, a private real

estate service provider.

Hangzhou, a city of 12.5 million people, is also China's

answer to Silicon Valley, being home to technology majors

including Alibaba Group ( BABA ) and NetEase ( NTES ). It has

been a magnet for tech talent from all over China.

The city's decision will be "very inspiring" for other

cities that still have curbs, and a wave of cities will see

unprecedentedly large-scale policy easing starting in May, Yan

predicted.

On Thursday, authorities in Xian, a city of more than 13

million residents and capital of northwestern Shaanxi province,

will also allow private companies and government-affiliated

institutions to buy second-hand housing and newly-built

apartments, in a move to reduce swelling housing inventories.

The initial reaction by analysts to the moves by Hangzhou

and Xian was lacklustre.

"Relaxing purchase restrictions has proven ineffective at

reviving demand," said Joe Peissel, an economic analyst at

Trivium China.

"That's because there are massive excess supplies of housing

- both new builds and secondhand units - that weigh on prices

and deter buyers from re-entering the market."

'SYMBOLIC'

Currently, only southern Hainan province, the northern city

of Tianjin, the southern cities of Zhuhai and Hengqin, and

China's four biggest cities - Beijing, Shanghai, Guangzhou and

Shenzhen - are still enforcing purchase restrictions.

"Except for the biggest cities of Beijing and Shanghai,

easing the purchase restrictions in other cities are only

symbolic," said Zhang Dawei, analyst at Centaline Property

Agency Ltd.

"What really affects demand is that people expect house

prices to fall, there is no investment value, and they can't

make money, so few would buy property whether or not there are

purchase restrictions," said Zhang.

But analysts do not expect the four so-called tier-one

cities - Beijing, Shanghai, Shenzhen and Guangzhou - to drop all

their restrictions soon.

"There is not going be a blanket drop for restrictions in

all tier-one cities, but certainly they will continue to be

relaxed until there is a sustainable rebound in demand," said

Peissel.

"Prices need to fall much further before the property market

reaches a new equilibrium and homebuyers have the confidence to

re-enter the market," he said.

During the five-day May Day holiday, China's average per-day

home sales by floor area plunged 47% from a year earlier,

figures from the China Index Academy showed, among the country's

largest independent real estate researchers.

The competition among cities to remove purchase restrictions

could also dilute demand in certain segments of the market, said

analyst Yan.

"Because of the already limited demand, some people may go

buy new homes after the easing, which will have a short-term

negative impact on the second-hand housing market," said Yan.