Zhengzhou Lifts Property Price Caps, Anticipating Wider Sector Decline

China's Zhengzhou city has recently removed restrictions on ceiling and floor prices for new home sales, as reported in a notice by the city’s housing regulator. This move could potentially lead to further declines in property prices in the short term, putting pressure on homeowners and impacting China's struggling property sector.

According to the regulator's announcement, the city of Zhengzhou no longer guides the sales price of new homes, allowing developers to set their own prices for sales instead.

This follows similar actions taken by other Chinese cities earlier this year, such as Shenyang in the northeast region and Lanzhou in the northwest. More cities are expected to relax property market restrictions in the future, leading to a potential further drop in house prices across the country.

The easing of price controls may result in developers lowering their prices to clear inventory, according to Ma Hong, senior analyst at GDDCE Research Institution in Shangh. However, he notes that falling house prices might decrease homeowner wealth but will have limited impact on home purchases due to weak consumer confidence.

Homebuyers are concerned about delays in receiving new homes as the property sector has been struggling since 2021 partly because of efforts to reduce high leverage, which led to a series of bond defaults and left many pre-sold properties unfinished.

In response to this situation, China's central government has given cities more autonomy over their real estate market, allowing them to cancel or reduce housing purchase restriction policies as mentioned in the plenum of the Communist Party’s Central Committee under President Xi Jinping.

Moreover, Chinese leaders have promised continued support for ensuring the completion of unfinished projects and converting unsold apartments into affordable housing.

Goldman Sachs recently projected more reductions in mortgage rates in China alongside increased government funding and operational streamlining to help with inventory destocking. However, without additional major stimulus measures to ease liquidity issues within real estate companies, a challenging market environment is expected to persist.

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