Housing Market Rescues Begin, Subsidies for Buyers, Lotteries Whip Up Speculative Fever

Third- and fourth-tier housing markets have cooled down enough that governments are launching rescue efforts. Meanwhile, first- and second-tier cities have seen increased use of housing lotteries. As before, the lotteries are whipping up speculative fever because homes are sold at below market prices.

iFeng: 楼市降温!三四线已有城市开始酝酿“救市”
In 2018, due to the cooling of the property market and the retreat of the shed, the land market cooled down and the growth rate slowed down. In some third- and fourth-tier cities with high financial dependence on land, cities have begun to “save the market”.
The end of cash payments for shantytown renovations hit smaller cities hard.
Lu Wentao, an analyst at Shanghai Zhongyuan Real Estate Market, said in an interview with the reporter of China Times that the change of the shed reform policy has a certain impact on the land market. With the reduction of monetized resettlement, there is a lot less demand for home purchases in the market. Especially for the third- and fourth-tier cities, there is not much endogenous demand. The demand for home purchases has been released when the previous wave of house prices grew rapidly. There may be fewer needs. Housing companies will naturally look at these markets with caution and will be more cautious when buying land.
BAck in June 2018, there were doom and gloom articles about lower-tier housing markets because this policy was ending. See: Third and Fourth-Tier Cities Doomed As PSL Goes Away, Deleveraging Will Not End

Many Chinese cities rely on land sales for revenues.
Since 2012, the ratio of land use right transfer fees to local public budgets has remained above 0.4. In the past two years, as the land transfer fees have risen, the ratio to local general public budget income has also increased. 2017, 2018 The ratio rose to 0.57, 0.66, more than half of the local general public budget income.

Zhuge looked for housing analysis. From the ratio of land use right income to local general public budget income, it can be clearly seen that local governments have always relied heavily on land finance. Local governments hope to sell land to make up for and maintain local fiscal revenue and expenditure gaps. However, in recent years, the negative impact of excessive reliance on land sales revenue has become more and more serious. The dependence on land finance has gradually become one of the important factors leading to the rise of housing prices, and it has also increased local debt risks and financial risks.

From the perspective of cities, in 2018, the average ratio of land transfer fees in first-tier cities, second-tier cities, and third- and fourth-tier cities to local general public budget revenues was 0.4, 0.91, and 1.51, respectively. Third- and fourth-tier cities have the highest dependence on land finance.
Way back in 2012, the central government realized land finance was an issue. Around 2014, the government started talking seriously about the issue, along with replacement revenue. There was serious talk of launching a real estate tax. Municipal bond markets were pushed because cities had been relying on land sales, and financing borrowings with revenue from land sales. As debt levels increased, the cities became more and more reliant on a revenue stream that is at the mercy of the cyclical credit market.

2014: China Will Have a New Housing Minister; Nanning Fires First Rescue Shot; More May Come in Second Half of 2014 (a good reminder for those looking for stimulus and/or housing recovery that China started rescuing housing in 2014, but the cycle bottom was in 2016)
2015: The Age of Land Finance Is Over
In the first quarter, land finance only made up 32% of government revenue (as Chinese media reports it), down from 60% in 2013. The 32% figure is equivalent to about 25% of total government revenues. This has serious implications for local government finances, since some local government debt is backed by land sale revenue and land sales fuel development projects.
2017: The End: Provinces Plan 45 Trillion Investment Binge
Back in 2014, flaws in the land finance model were exposed. The need for reform and a new revenue stream, via a property tax, was identified. Instead of reform, the Chinese economy got more credit. The only thing forestalling a significant deceleration is still massive credit growth. Remove the credit and there will be a reckoning.
Nothing has changed. If anything, the problems from 5 years ago have grown worse, particularly for smaller cities.
Zhuge looked for housing analysis, the first-tier city industrial transformation, and gradually entered the post-industrialization stage, the industry is reasonable, the government generally has higher public budget income, and the land financial dependence is at a lower level; the second-tier cities are in a period of rapid expansion, demand is strong, and the market is hot. The scale of land supply is large and the competition of housing enterprises is fierce. The land financial dependence is slightly higher than that of first-tier cities. The third- and fourth-tier cities have limited economic resources and insufficient anti-risk ability. However, under the circumstance of the shed reform and the industry's upward cycle, some cities have land transfer. The income has increased substantially, and the land finance reached its highest dependency in 2018.
No wonder that smaller cities are starting their "housing market rescue" efforts.
Some third- and fourth-tier cities are brewing "rescuing the housing market"

At the end of 2018, several cities began to quietly loosen their control policies. Heze canceled the policy of restricting sales, the social security requirements for the relaxation of housing purchases in Hangzhou and Zhuhai, the cancellation of the implementation of the lottery policy issued by the Qingdao High-tech Zone six months ago, and the loosening of restrictions on purchases by Hefei. These cities have opened a small climax of local relaxation and purchase restrictions.

Recently, some local governments have started the “bailout” policy. Heze Chengwu County has introduced a new real estate policy, stipulating that farmers in the towns can enjoy a discount of 300 yuan/square meter for the first suite. The down payment is no more than 30%. The lower limit of the loan interest rate is 0.9 times the benchmark interest rate of the loan. The upper limit does not exceed 1.25 of the benchmark loan interest rate.

In this regard, Lu Wenzhao said that buying a house subsidized housing, this is the most direct stimulus, the action of Chengwu County to save the city has been very obvious. In some places, relying too much on land finance, if the house is not sold well, and the land cannot be sold, it will directly affect the income of the local government. This is definitely not acceptable to the local economy. Third- and fourth-tier cities, especially those with high financial dependence on land, will definitely find ways to loosen their policies. There are still many cities like Chengwu County in the future.

Guo Yi also said that this year's real estate regulation and control implements “implementing the main responsibility of the city”. All localities need to introduce regulation and control policies according to the characteristics of the city. Some cities with demonstration effects are not stopped by the central government. It is expected that more cities will carry out the property market this year. Moderate loosening, but this loosening will be a gradual, tentative. If the market is overheated, the loosening will not continue, because the local government still has to be responsible for the results of the regulation, and keep the bottom line of "house is for for living, not speculating."
While smaller cities are loosening and even beginning direct subsidies, first- and second-tier cities are experiencing a revival of animal spirits.

CNStock: 万人摇号买房又出现!楼市迎来“小阳春”?
The property market, which has been depressed for half a year, is heating up with the warming of the weather.

On March 21st and 22nd, two buildings in Hexi, Nanjing, were publicly shaken. A total of 7766 people participated in the purchase of the house, and the winning rate was about 6% and 7.8% respectively.

Similar buying scenes have been staged in hot cities such as Beijing, Hangzhou and Chengdu after the Spring Festival. Individual real estates have also seen thousands of people participating in the lottery.

Not only is the property market, but the land auction market is also heating up.

Since the Spring Festival, the volume of high-value plots has increased significantly, and the premium rate capping and the highest unit price of the region have flashed from time to time.
The Chinese government has never had success with real estate controls. The only time controls have worked is when the credit cycle is working in their favor. When controls are put in place in the growth cycle, speculative fever surges as buyers rush to grab property because the next time policy eases, prices will surge along with credit growth. When controls are lifted, it often leads the credit cycle and has seemingly no effect until the credit shows up.

For now, there is no major stimulus effort in China. Real estate easing should have some positive effects, but not as much as anticipated. If the economy stalls and stimulus is pushed, the door is opening for another inflation of the housing market.

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