Beijing’s move shows resolve to cool market
28 April 2010
Alan Chiang Sheung-lai, head of the mainland residential department of property adviser DTZ, felt a chill when he read the circular released on April 14 announcing the latest round of measures aimed at curbing demand in China’s property market.
“I thought that this time the outcome will be different from what happened in the beginning of the year. This time prices will fall substantially,” he recalled.
“The reason I thought this was because this time the circular was not issued by any ministry, not even the administrative office of the State Council, but by the State Council itself – the highest level in the state hierarchy.
“It was the first time the State Council had issued a circular of new measures to rein in the red-hot property market.”
Previously, Chiang said, nine or 10 ministries jointly announce regulatory measures on the property market, but those declared by the State Council seemed to underscore a new determination to ensure a price correction in the sector.
“The new round of measures are the toughest so far in the history of the mainland property market,” he said.
In its circular, the State Council said the minimum down payment required on the purchases of second homes would be increased from 40 per cent to 50 per cent, and lending to buyers in this segment of the market would be charged at 1.1 times the People’s Bank of China benchmark interest rate of 5.31 per cent.
Three days later the council banned mortgages on purchases of a third property, as well as imposing residency requirements on buyers.
Subsequent clarification by the central government also tightened the definition of a second property to include all real estate held by the family other than the one for their own dwelling, whether or not the first property was mortgaged.
The new measures would cool the market, said Chiang, who believed that prices in first-tier cities could fall by as much as 22 per cent from the peak levels of the first quarter, while in second-tier cities prices could fall by an average of 18 per cent.
He said the measures would ensure that last month’s rebound in demand would not be sustained. Transaction volumes picked up towards the end of last month after a temporary easing in January and February, Colliers International said.
National Development and Reform Commission figures showed that the price index of sales in 70 mid-sized to large cities surged by 11.7 per cent year on year last month, the fastest growth since 2005.
Colliers said that in Shanghai, transaction volumes last month soared by 128 per over February, while the average transaction price remained steady at 19,767 (HK$22,400) yuan per square metre, up 55 per cent year on year.
“The central government sooner or later will retreat from the market. It will be next year if not this year,” Chiang said.
But since the latest measures were targeted at investment and speculative buyers, a significant proportion of the buyers of luxury properties, Colliers believed they would have a stronger impact on the high-end market. And if the measures did not have the desired effect, Chiang predicted that a “real estate” tax could be imposed on residential properties in a move to increase holding costs.
Final details had not yet been finalised, but it was rumoured that Shanghai and Chongqing may set a levy on investors holding luxury homes that they either leased or left vacant to bet on capital appreciation.