Harbin city announces measures to support property developers, more cities expected to follow suit

The city of Harbin, capital of North China’s Heilongjiang province, has become the first city in the country to announce measures to support real estate developers amid a cooling housing market and growing concerns over their financial health.

The city will provide subsidies of up to 100,000 yuan ($15,500) for talented residents with skills and qualifications looking to buy homes for the first time, according to a document released by the local housing authority on Sunday.

Home buyers can purchase second-hand homes up to 30 years old with loans from Provident Fund which carry lower interest rates than banks’ home mortgage loans, it said. Previously, loans from the Provident Fund were only used to buy used homes up to 20 years old.

Property developers will be allowed to apply for pre-sale permit for a building when construction is completed, the document said. Previously, they were not allowed to apply for pre-sale permit until construction of a whole project was completed.

Developers should get back part of their pre-sale funds held in government escrow accounts as quickly as possible to relieve pressure on their cashflows, the authority said.

China’s property sector, which accounts for about a quarter of the country’s GDP, has been hit by tighter rules on developers’ borrowing which have hurt cashflow as well as developers’ ability to finish construction and raise funds for new projects.

Harbin’s move sent a strong policy signal and more cities are expected to follow suit with measures to support the sector, said Yan Yuejin, research director of the E-House China Research Institute. “Especially in cities under great pressure from high inventories, such as some tier-three and tier-four cities in central and western regions.”

The main issue in many cities’ housing markets have shifted from “too hot” to “too cold” and new risks – property developers’ financial risks – are emerging, said Yan.

“The measures including actively reducing financial pressure for developers and lowering housing inventories through multiple channels are largely within expectations, indicating that shifting policy stance,” said Yan.

The city introduced a series of practical measures to reduce developers’ financial pressure, such as lowering the requirements for them to apply for pre-sale permits, accelerating return of pre-sale funding, lowering land value added tax and support developers’ promotion campaigns, said Yan.

“The introduction of the measures indicate that homebuilders are facing pressure from all rounds, including liquidity pressure, pressure from taxes and other spending, home sales pressure, etc.”

In addition, measures including home purchase subsidies, relaxation of rules for use of loans from Provident Fund, etc, will lower home buyers’ cost and ease their concerns and are likely to boost home purchases in the fourth quarter, he added.

For the past couple of months, China has seen a pattern of two-way adjustments of real estate policies, with some cities restricting home price gains while others limiting price falls, said Chen Wenjing, deputy research director at index department of the China Index Academy, one of the largest independent real estate research firms.

Morgan Stanley lifted its view on China’s real estate sector to “attractive” from “in line”, saying regulators may relax their grip on the sector to help stabilise it and support the economy, according to its research note on Sunday.

The bank said that systemic risks have become more manageable as regulators and local governments have the experience and the mechanisms in place to deal with developer defaults.

“Debt restructuring will also be done at the holding company level, while the operating companies or property projects will remain in operation during the restructuring with the support of regulars and local governments,” it said.

Kenneth Ho, head of Asia Credit Strategy at Goldman Sachs, also said he thought China’s policymakers would have zero tolerance for systemic risk and policy support would be forthcoming if there was more deterioration in property activity levels.