China's housing sales to decline to more sustainable level: Fitch

BEIJING - Sales of commodity housing in China are near a cyclical peak, and sales volume is likely to fall due to regulatory tightening in some markets, according to a report from global ratings agency Fitch.

The decline is likely to be gradual as China's credit environment remains accommodative in the near to medium term, said Fitch, adding that the commodity housing sales volume will decline to a more sustainable level in the long run.

Fitch said that easy credit, supportive home ownership policies, and much lower prices in lower tier cities compared with first tier cities have stimulated demand this year.

Fitch said some of these supportive factors will run their course in the near-to-medium term.

Housing prices have risen significantly in larger second-tier cities and, in response, local governments are tightening home purchase restrictions and mortgage policies to dampen demand, it said.

Last week, Nanjing and Suzhou, two big cities in Jiangsu province, announced fresh measures to contain rising housing prices, including raising the minimum down payment for second homes, and raising residential land bidding deposits.

In addition, housing developers have been drawing down on their land reserves instead of buying new plots, with land sales in decline since late 2014. This means housing sales growth will have to slow eventually unless the developers replenish land at a faster pace than they are selling homes.

However, a sharp drop in housing sales volume is not likely because the Chinese government still has policy tools, including further loosening of its credit policy, to stimulate demand, especially from discretionary upgraders, and to smooth out sharp volume and price volatility, said the report.