Relaxed ‘Hukou’ Rules Spur China Home Rebound Beyond Beijing
China’s property market is shaking off the coronavirus effects as a gradual economic rebound and the further relaxing of centuries-old permits boost demand beyond the major hubs of Beijing and Shanghai.
Almost 60,000 prospective buyers flooded onto the registration website of Xixi Mansion last month for a chance to buy one of 959 apartments in the leafy city of Hangzhou. The wave of interest crippled the website, prompting developer Sino-Ocean Group Holding Ltd. to rent an internet cafe to process applications overnight.
“Interest rates are the lowest I’ve seen in five years,” said Ivy Lin, a software engineer who plans to buy a two-bedroom apartment at Xixi Mansion, which were selling for 2.5 million yuan ($350,000). “Money will either flow to real estate or stocks, and I have to pick one to preserve assets.”
The fragility of China’s economic recovery from the outbreak and sky-high home prices haven’t shaken investors’ long-standing belief that real estate is a safe bet. Even as consumer demand and private-sector investment in the world’s second-biggest economy remain weak, property prices rose in May at the fastest pace in seven months.
China’s housing recovery, coupled with gradual rebounds in Hong Kong, Singapore and South Korea, signal Asia may be charting a path for the rest of the world with a surprisingly fast housing reboot as virus lockdowns ease. Korea even took steps to curb overheating in the property market last week, with stricter mortgage and tax rules to prevent speculation.
In China, some of most frenetic buying has been in a few of the country’s booming regional centers in the east and south. Blame it on the “hukou.”
This passport-style system of regional permits dating from the 11th century is intended to limit migration by restricting employment and home buying to local residents. Yet several city governments further relaxed residency requirements in response to the virus, boosting migration and real estate demand.
Right after the March reopening, the eastern city of Suzhou reduced tax-paying thresholds for hukou. Non-residents now only need to pay tax for six months to obtain residential status, a quarter of the previous time. Jinan, the provincial capital in northeastern Shandong, wiped out almost all hurdles for hukou in early June. Earlier this week, Hainan removed entire hukou hurdles for university graduates, effectively allowing them to bypass home-buying restrictions introduced two years ago.
“The biggest cities are lowering their bars for admission of talent, which together with the natural draw of such cities is set to boost their housing demand,” according to a report by Bloomberg Intelligence analysts Kristy Hung and Patrick Wong.
The dizzying migration to these regional hubs is showing little signs of easing. Hangzhou, a city of 10 million people where Alibaba Group Holding Ltd. is based, added 554,000 residents last year, 10 times the population growth in China’s biggest city of Shanghai.
These measures, which Nomura Holdings Inc. calls “stealth easing” for the property market, have stoked confidence for developers. Armed with cheaper funds, builders have been snapping up land plots, breaking price records in cities like Shanghai, Guangzhou and Shenzhen since February.
This will give a particular boost to Sino-Ocean, Longfor Group Holdings Ltd. and KWG Group Holdings Ltd., which are most active in these mid to large cities, BI’s Hung and Wong noted. China Evergrande Group, one the biggest developers, has fewer investments in these areas, the analysts wrote.
It’s a similar story in eastern Nanjing, where thousands of prospective buyers wearing face masks lined up outside a convention center this month, competing for a 57-to-1 chance to buy an apartment in Beyond City for about $500,000 each. In southwestern Chengdu, Evergrande touched off a craze when it sold almost 1,200 units in a day for a project about a third the size of New York’s Central Park.
Following the hukou relaxation, housing sales in Hangzhou jumped 49% in May from its monthly average last year, China Real Estate Information Corp. data show. The effect is even bigger in Nanjing and Jinan, with sales up 79% and 97% from 2019 monthly averages.
The enthusiasm for mid-market projects follows a jump in demand for luxury homes on the coasts. Since April, homes priced at about $2.8 million, roughly four times a mid-range residence, have emerged as the most sought-after projects.
For some buyers, that’s sparking a little FOMO -- fear of missing out on another home-price rally.
Home values have surged following recent health and economic crises in China, mainly driven by subsequent stimulus. Residential prices in the financial hub of Shanghai surged 25% in 2003 after the SARS outbreak, and jumped 52% in 2009 following the global financial crisis.
“Wealthy customers flock to high-end homes mainly to store wealth against inflation,” said Yang Kewei, a research director at the China real estate agency. “But when the phenomenon stokes expectations of a housing surge in the mass market, it makes people who already have home-buying plans panic.”
To damp housing price expectations, the government has remained cautious amid the virus, except for the hukou reform designed to promote freer movement of labor.
Adhering to President Xi Jinping’s firm stance that “housing is for living in, not for speculation,” the majority of local authorities didn’t loosen home-buying restrictions, such as limiting the number of apartments a family can purchase and keeping a high bar on mortgage lending. To prevent a boost in home credit, the central bank on June 1 explicitly requested lenders shift their focus away from real estate.
Still, there’s enough demand in the big urban centers to suggest Chinese home buyers are back.
“The home market is one of the few sectors in China that is entirely driven by domestic demand and completely immune to external shocks,” said Phillip Zhong, a senior equity analyst at Morningstar Investment Management Asia. “On a relative basis, real estate will be the most resilient sector in China.”
©2020 Bloomberg L.P.