China Stresses Property Curbs to Further Temper Prices

BEIJING, Feb. 25 – China’s State Council on Wednesday restated its intention to maintain housing market tightening measures to limit property speculation and curb rocketing house prices in response to a rebound in the real estate market in some cities,

Analysts said the policy pledges signal Chinese government determination to rein in excessive home price rises amid a recovery in the property market across the country. Given the policies of “limiting purchase, prices and loans”, industry experts played down the risk of a sustained surge in housing prices this year, predicting that the future property prices will remain stable with sufficient market supply.

Continuity of property control policies

In a fresh bid to calm frothy real estate markets, China’s cabinet on Wednesday unveiled five policies, including improving responsibility system for stabilizing housing prices, curbing speculation in the housing market, increasing ordinary commercial housing and land supply for that purpose, accelerating construction on government-subsidized housing, and strengthening market supervision.

This is the fifth time that China has stepped up the housing market tightening measures since the government started macro control on real estate market in December 2009.

These five measures not only kept the continuity and stability of the macro-control policies, but also broadly restated measures China has rolled out in the past three years of steady campaigning to rein in excessive home price rises.

The State Council decided in a meeting chaired by the premier to keep curbs on the purchase of residential housing for investment purposes and to expand experimental property tax reforms in Shanghai and Chongqing to more regions.

Chen Jie, a researcher from Shanghai-based Fudan University said property tax acted as a brake on speculative housing demand, adding that it is hard for the speculators to decide on whether to hold the property with a view to wait for an uncertain appreciation or to cash in to acquire certain profits as soon as possible.

The cabinet asked cities that have imposed restrictions on the housing market to maintain their grip, while other cities in which home prices have soared too fast will be asked by the related provincial governments to introduce timely curbing measures, according to a statement released after the meeting.

Buoyant prices in some cities are mostly due to China's urbanization and shortages in home supply will likely persist in these places in the near term, the statement said.

China's urban population outnumbered that of rural areas at the end of last year, an increase that is expected to give momentum to urban property markets.

The State Council also pledged to ensure land supplies for housing projects this year, saying that land supplies for home construction should not be lower than the average for the past five years.

Meanwhile, the government will also accelerate construction on government-subsidized housing. The government aims to finish construction on 4.7 million affordable housing units and start construction on another 6.3 million units.

Property market heating up again

Average new home prices in China posted their first annual rise in nearly a year in January, sending a fresh signal that the market is heating up again after three years of government-imposed measures to cool it down.

Home prices rose month-on-month in 53 of 70 major cities monitored by the National Bureau of Statistics (NBS) in January, just down from 54 in December.

New home prices in first-tier cities including Beijing, Shanghai, Guangzhou and Shenzhen rose 2.1 percent, 1.3 percent, 2.0 percent and 2.2 percent, respectively, on a month-on-month basis, marking a quicker pace of growth than in December.

On a year-on-year basis, 53 cities registered rising prices, with the growth rate taking a drastic jump to 4.7 percent from the 2.4-percent rise recorded in December, the NBS said.

Liu Jianwei, a senior statistician with the NBS, attributed the sharper price increase to two factors: property developers phasing out sales promotions after prior discounts had taken effect and buyers cashing in amid intensifying worries about future price rises.

Wang Juelin, researcher of the Policy Research Center with the Ministry of Housing and Urban-Rural Development, said the rebound in the property sales of China’s first-tier cities is the direct reason for the price picking up in other regions.

To keep property prices in check, the government has taken an array of measures, ranging from raising the minimum down payment and higher interest rates for second-home mortgages to putting a conditional ban on the buying of properties by non-local residents.

However, after a short-lived cool-off in 2010, home prices started to rebound unexpectedly in the second half of 2012, shored up by the country's pro-growth policies, including two consecutive interest rate cuts and the lowering of banks' reserve requirement ratio.

Analysts said the rebound of the property market could prompt the authorities to step up their efforts, perhaps by expanding home-purchase restrictions to more areas or tightening monetary policy.

There are speculations that the down payment for second-home purchasers will probably be increased to 70 percent from the existing 60 percent, and the mortgage rate will also be hiked to 1.3 times the benchmark interest rate instead of the current 1.1 times.

"The government still has measures that could be used to cool down the sizzling market, such as tightening up bank loans to property developers and increasing the down payment for second home purchases," said Liu Chunyan, executive director of real estate service provider World Union.

Sharp rebound of housing market unlikely

Industry insiders said despite pressure of rising prices, the real estate market will not see a huge rebound as long as government firmly sticks to macro control policies.

On the one hand, though the decline of new construction areas last year will weigh on this year’s supply, the housing inventory is still high, making it unlikely that the supply will fall short of demand. On the other hand, resolutely curbing the speculative demands will effectively temper stubbornly high house prices.

Liu Jianwei forecast that prices will not rebound dramatically if curbing measures are strictly implemented, especially in light of the completion of more affordable housing units this year.

"With the government's property measures being effectively implemented, the upward home price pressure seen starting from the fourth quarter of last year is expected to fade and there is no basis for home prices to experience an overall big rebound," Liu said.

The affordable housing program, first approved in 1999, has enabled low-income families to own homes despite the overheated real estate sector in recent years.

Liu also said that based on last year's rate of sale, the 236 million square meters of housing pending sale in December should be sold by March.

That means the housing market faces a generally balanced situation in supply and demand, providing a foundation for forecasting stabilizing housing prices, said the statistician.

Liu Chunyan admitted that the prime property in key cities will face huge price hike pressures in 2013, due to the supply-demand imbalance. "But soaring prices across the country are still unlikely, considering the government's determination to rein in runaway property prices."

Chen Sheng from China Index Academy held that the newly unveiled “five policies” rang alarming bell for the market. Chen estimated that the property market would probably either rebound mildly or recover first before damping later and housing prices would not rise by a large margin.