China Real Estate-New Beijing policy:not a deviation from expectations

Not a game changer – differentiated tightening approach as expected. OnFriday afternoon, Beijing municipal government raised the down paymentrequirement to further regulate the housing market. Based on the new policy, thedown payment requirement for second home purchase is revised up from 50% to60% for standard home and 70% to 80% for non-standard home (>144sqm). Inadditions, banks will no longer be able to provide mortgage with tenure of over 25years (versus a maximum of 30 years before). The policy mainly targets secondhome buyers and buyers who have mortgage records (including housing providentfund) in the past. In our view, the announcement is coming on the back of recentupward movement of secondary home prices and improved market sentiment. Otherthan Beijing, we have seen incremental tightening in home purchase restrictions incities such as Guangzhou, Changsha, Zhengzhou and Shijiazhuang.

    February home price growth picked up pace slightly m-o-m. Average new homeprices in 70 major cities rose 0.3% m-o-m in February, picking up the pace slightlyfrom 0.2% m-o-m growth in January. On a y-o-y basis, new home price rose 10.3% inFebruary, which slightly moderated from January’s 10.4% y-o-y growth.

    News on renewal of 70-year land use limit should garner more attention. Apositive yet unexpected development during the NPC and CPPCC session that wefeel has not attracted as much attention from the market is the government’s intentionto provide legal guarantee for the renewal of residential land use right after expirationin 70 years. This is a concern that has surfaced in Wenzhou since late-2016 asproperty owners faced the risk of having to pay additional land premium upon therapidly approaching expiry. While it is unclear how the related realty law will beamended, Premier Li’s commitment to stabilizing market expectations on this frontshould help alleviate homeowners’ concerns on property ownership. In stanceswhere the land use right can be renewed without application and fees, the positiveimplication is that mortgage tenure could be extended to better support housingaffordability.