China's political leadership dropped its "housing is for living, not for speculation" catchphrase at its latest politburo meeting, but analysts warn this should not be taken as policy reversal.
Unlike communications from other top-level meetings in recent years, the memo the main decision-making body of China's Communist Party released July 24 omitted the phrase. President Xi Jinping's "housing is for living" comment has been the guiding policy principle to contain the overheating property market since 2016 and has been repeatedly referenced in subsequent statements.
The July 24 memo calls for measures to defuse the risk of local government debt and pledges to restore confidence in the capital market, a signal that recent restrictions on the property market will be somewhat eased.
"Dropping of the phrase alone should not be taken too seriously as the authorities are still making efforts to defuse the rising risk of local government financing vehicle debts, which is closely related to the property market," said Bruce Pang, chief economist and head of research for Greater China at real estate consulting firm Jones Lang LaSalle.
Growth picking up
China's gross domestic product expanded 5.5% year over year in the first half, putting the world's second-biggest economy on track to reach the official aim of GDP growth of around 5%, after it missed the 2022 goal when the economy grew 3.0%. Still, the sluggishness in the property segment has been a concern as the sector, which accounts for nearly a third of the economy, could remain in the doldrums unless the government steps in. China has sought to reduce its dependence on the property market in recent years by, among other things, restricting developers' borrowing ability and directing credit to sectors such as high tech and infrastructure.
There could be greater flexibility for homebuyers on down payments or mortgage rates, including possible cuts to the benchmark mortgage rate, and purchase restrictions may be eased based on the needs of individual municipalities, Pang said.
People's Bank of China, or PBOC, on June 20 cut its one-year and five-year Loan Prime Rates by 10 basis points each to 3.55% and 4.2%, respectively. The five-year rate is widely seen as a benchmark for home mortgage rates.
While China had "sent a signal of further easing [of] property restrictions" by dropping the housing catchphrase, "there is no quick fix for the property sector," Nomura economist Ting Lu said in a July 25 note.
"Do not expect Beijing to launch another large-scale PSL shantytown program," Lu said, referring to country's pledged supplemental lending scheme.
The program, which the PBOC introduced in 2014, refers to low-cost loans granted by three policy banks — China Development Bank, Export-Import Bank of China and Agricultural Development Bank of China — to fund local government projects, such as shantytown renovation initiatives.