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Policy shift seen boosting sentimentMainland cut in bank reserves and support measures expected to encourage buyers, but critics play down gain unless controls endPaggie Leung07 December 2011Analysts are expecting liquidity easing and new property supportive policies in some mainland cities to lift buying sentiment, but some critics believe such measures will not have much impact unless the government ends its property controls.The People’s Bank of China this week lowered banks’ reserve requirement ratio for the first time in three years. The cut of 50 basis points took the ratio to 21 per cent for large lenders and 17.5 per cent for small and medium-sized lenders.The reduction is expected to unlock about 400 billion yuan (HK$489.2 billion) in deposits into the banking system that can now be used to create loans.The move was seen in the market as a signal that the government might follow the credit easing by loosening some property controls.“While the cut does not represent property market loosening, it should help boost homebuyer sentiment and provide a catalyst for property stocks,” Deutsche Bank’s research analysts Tong Tsang and Jason Ching said in a report.They said macro policy relaxations generally had a positive impact on housing demand, and the easing of liquidity would not only stimulate buying sentiment and confidence in the economic outlook but also enhance economic activity and strengthen the buying power of prospective investors.“Given the rising risks of an economic slowdown and growing pressure for deeper asking price cuts, we believe the risk of further significant tightening measures is now low, while we would likely see easing activities if the situation deteriorates faster than expected,” they said.Deutsche Bank forecast the central government might relax its macro tightening measures by, for example, further cutting the reserves ratio and interest rates within the next three to six months. Relaxation of real estate measures such as home purchase restrictions and mortgage tightening would only happen during or after the second half of next year.Under the restrictive tightening measures, many first and second-tier cities have suffered a significant decline in land sales revenue. This may bring challenges to their financial situations since land sales and property-related revenues last year made up 43 per cent of local government revenue.Indeed, some local governments have fine-tuned some property policies and land sale rules. For example, the Beijing local government expanded the coverage of preferential deed tax treatment for ordinary homes last month, which represents a deed tax cut from 3 to 1 per cent on certain homes. This was followed by similar measures in Wuhan.The Hangzhou government has, meanwhile, budgeted 100 million yuan as subsidies for home purchases, granting a maximum 100,000 yuan for each qualified first-time home-buyer plus additional subsidies on interest on mortgage loans.Samsung Securities estimated the tax cuts in Beijing and Wuhan equated to a reduction of about 5 to 6 per cent in total initial cash payment for first-time home-buyers, which it noted was “more significant than just an improvement in sentiment”. It also said the subsidies in Hangzhou could lower down payments by 20 per cent.“We continue to believe the central government’s mindset has shifted from viewing the property sector as the source of all domestic problems to a sector that it needs to protect against downside,” its analysts said.“We expect more local governments to follow Beijing and Wuhan and we continue to see a chance of partial relaxation of home purchase restrictions in the first quarter of 2012.”Meanwhile, latest property sales data shows prices may have reached a turning point.According to the China Real Estate Index System, home prices in 100 major cities recorded their biggest month-on-month decline this year in November; which was also the third executive fall.
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