Prices of China’s new homes rose at slower pace in December

Prices of new homes in China rose at a slower pace in December, with tightening policies continuing to cool the market, a private survey showed on Friday, but price growth in 2020 still topped the previous year’s pace despite the coronavirus pandemic.

New home prices in 100 cities rose 0.25% in December from a month earlier versus a 0.32% gain in November, moderating for the second straight month, according to data from China Index Academy (CIA), one of the country’s largest independent real estate research firms.

More cities reported monthly gains, however, with the number climbing to 79 from 71 in November, and 19 cities saw lower home prices compared with 28 in the preceding month, the CIA data showed.

Dongguan and Guangzhou, two cities in the southern Greater Bay Area, led the price rises. While central and northern cities like Luoyang and Zhangjiakou saw the biggest monthly price drops.

“With the government’s market-cooling steps taking hold, the overall price gains remained on a mild level,” said Cao Jingjing, Research Director with CIA.

“The cooling growth is also weighed by deepening price drops in some smaller cities which saw a withered local economy and continued population outflow.”

On an annual basis, new home prices rose 3.46% in December, versus November’s 3.63% gain.

For the whole year of 2020, new home prices rose 3.46%, slightly more than 3.34% seen in 2019, the CIA data showed.

China’s property market has recovered quickly from the COVID-19 pandemic early last year, thanks to cheaper credit and looser purchase restrictions.

But with the economy nearly fully recovered to pre-coronavirus levels, policymakers have been turning their attention back to containing financial risks in the highly leveraged sector, ramping up scrutiny of financing activities of developers and buyers.

Land sales by volume rose 7% in 2020 from 2019, while the average transaction price per square metre rose 7% last year，buoyed by double-digit growth of land prices in tier-1 cities, separate CIA data showed.Meanwhile, China’s central bank issued a regulation on Thursday to cap property loans by banks, as authorities shift their attention back to debt risks and look to guard against any overlending to the property sector.

The People’s Bank of China (PBOC) said each bank’s outstanding property loans as a proportion of total loans, as well as its ratio of outstanding mortgages to total loans, should be capped as required.

The establishment of the so-called collective management system for real estate loans will enhance lenders’ ability to withstand fluctuations in the real estate market and prevent systemic financial risks caused by over-reliance on real estate loans in the financial system, the PBOC said.

With China’s economy nearly fully recovered to pre-coronavirus levels, policymakers have been turning their attention back to financial risks after record bank lending this year. But analysts believe China’s overall credit growth will ease but only slightly in the near term as caution remains over the global economic outlook.

The government had for years taken measures to restrict credit to the real estate sector to contain financial risks. Nearly 30% of outstanding loans with China’s financial institutions were property loans by the end of September, according to PBOC data.

For China’s big four banks, along with China Development Bank, Bank of Communications and Postal Savings Bank of China, the ratio of outstanding property loans to total loans will be capped at 40% and their outstanding mortgages as a proportion of total loans, will be capped at 32.5%.

For smaller banks, requirements vary. The PBOC said the requirements could be adjusted upward or downward by 2.5 per centage points depending on the region’s economic performance.

Banks that do not meet the requirements would be granted a grace period. If they missed the requirements by less than 2 percentage points, they would be granted a grace period of two years. If more than 2 percentage points, the grace period would be four years.

By end of June, property-related loans accounted for 38.9% and 38.5% of total outstanding loans at China Construction Bank Corp and Bank of China, respectively, according to data compiled by Founder Securities Co , bringing them close to the 40% upper limit.

The new rule, due to take effect from Jan. 1, will further limit the access of funding for property firms, many of which are heavily indebted.