If Beijing is to be trusted on its view of the housing market there, then the bubble has deflated without a pop. As a result, the Chinese government will scrap restrictions on second-home purchases. For wealthy Chinese, it´s time to invest again.
Home prices are set to decline further next year and cities that still restrict multiple-home purchasing policies are expected to make it easier for investors to buy real estate, a report by an economic think tank at the Chinese Academy of Social Sciences said on Friday.
The property downturn since the beginning of the year prompted most of the cities that had restrictions to start easing them. There are now only five cities where the restrictions on second homes: Beijing, Shanghai, Guangzhou, Shenzhen and Sanya.
The first- and second-tier cities have entered a relatively oversupply period. Home prices would continue to drop and restrictions are expected to be eased completely," Zou Linhua, a researcher with the think tank told the China Daily.
Investors watch China´s housing market closely. A weak housing market, forced that way by law makers in Beijing, meant problems for housing developers, and possibly even lenders that have a lot of real estate debt on their hands. Investors see this as bearish. Yet, at the same time, a housing bubble was also seen as bearish because it gave investors concern of the possibilities of restrictions and financial crises down the ride. If the restrictions do not lead to rabid speculation and over supply, investors might return to the real estate and financial heavy iShares FTSE China (FXI) exchange traded fund, which has struggled to remain in the $40s since 2010.
This lifting of restrictions could be good news for FXI shareholders. Financials and real estate account for 48% of FXI´s sector holdings.
According to data from the National Bureau of Statistics, home sales in the first 11 months of the year fell by 9.7% from a year ago, while residential property investment grew by 10.5%. First- and second-tier cities are expected to lead the recovery by the second half of 2015. Smaller cities would see the recovery in the second half of 2016, the report said.
China International Capital Corp, the country´s largest investment bank, is bullish on housing. The bank said that China´s loose monetary policy would return national home sales to "growth" from "contraction" in the second quarter next year, and annual sales would grow by 3%.
