Property curbs adopted to rein in speculation

Fresh moves seek to sustain cleanup of residential sector amid restructuring

“There won’t be any letup, we’ll press on with crackdowns and policy tightening until your reform is inside out” — that could well have been the latest message sent by China’s authorities to the seemingly recalcitrant property sector.

Last month, local governments across China rolled out additional, and stricter, policies to rein in home prices that threatened to spiral out of control again.

“The aim of this real estate reform is to ward off risks in the property sector that has attracted huge capital and public attention. This is crucial to China as the country is undergoing economic restructuring,” said Lu Wenxi, a researcher from property consultancy Centaline Shanghai.

Agreed Zhang Dawei, chief analyst at Centaline Beijing. “By analyzing the National Bureau of Statistics data on home prices in 70 major Chinese cities in June, we found that about 92 percent of the 70 cities saw their new home prices and preowned home prices increase to the highest level since October 2016.”

Zhang’s reference was to the recently-published NBS data on first-half investments and sales relating to the real estate sector. NBS data showed investment in property development totaled 5.55 trillion yuan ($819.6 billion) from January to June, up 9.7 percent year-on-year. Residential property investment accounted for 70.2 percent, up 13.6 percent to 3.9 trillion yuan yearon-year.

Residential sales revenue soared almost 15 percent in the first six months this year. This is significant because it contrasts with a 3.2 percent drop in revenue from office realty sales and just a 5.7 percent rise in the commercial property sector.

Home prices in some, not all, big cities surged in spite of strict measures last year that checked runaway speculative investments. For example, in Beijing, one square meter of a new home sold for an average 53,107 yuan in June, 21 percent higher than the 43,891 yuan level at the beginning of 2017, but off the peak off 56,617 yuan in September, which receded to 50,990 yuan in January post-crackdown.

Similarly, in Shanghai, one square meter of a new home sold for an average 50,874 yuan in June, almost 9 percent higher than 46,782 yuan at the beginning of 2017, but a tad higher than the previous peak of 49,648 yuan in December; but post-crackdown, it fell to 42,544 yuan in February.

Similarly, in a tier-2 city like Hangzhou in Zhejiang province, the corresponding average price in June was 28,518 yuan per sq m (as against 21,829 yuan at the beginning of 2017, 28,162 yuan at the previous peak in October 2017, and 25,030 yuan in December after the crackdown).

The corresponding figures for a lower-tier city like Foshan in Guangdong province are 14,280 yuan now (as against 10,312 yuan at the beginning of 2017, 15,837 yuan at its peak in December, and 13,560 yuan in January after the crackdown).

NBS data summed up the price trend. Compared to last year, the four first-tier cities of Beijing, Shanghai, Guangzhou and Shenzhen reported no alarming rise in new home prices in June, and the prices of pre-owned homes rose just 0.1 percent.

However, in the same month, 31 tier-2 cities saw their home prices and used home prices rise 6.3 percent and 4.6 percent respectively from a year ago, widening the growth rates by 0.9 percentage point and 0.2 percentage point from May.

In addition, the other 35 tier-3 cities saw their new home prices increase 6 percent and used home prices by 4.3 percent.

Property industry experts warned home prices in lowertier cities may run the risk of steep increases, given that toptier cities appear to be falling in line, which could prompt investors to seek alternative destinations.

As if on cue, more than 40 Chinese cities announced 40-odd restrictions on the property sector as of July 28. The fresh curbs cover various aspects of the industry. In addition, Chinese cities unveiled more than 220 tightening measures since January, a two-year record.

Following up on last year’s crackdown on irregularities in the residential market, central government entities such as the Ministry of Housing and Urban-Rural Development, the Ministry of Public Security, and the banking and insurance regulators launched a new round of cleanup campaign.

Speculation will be sought to be contained, illegal agencies will be identified and ejected from the market, developers disciplined and fake advertisements removed, industry insiders said.

The campaign to combat property irregularities, which began in July, will be carried out in 30 major cities till December-end. A notice on the Ministry of Housing and Urban-Rural Development’s website stated that wrongful activities include price manipulation, deliberate delays in sales, illegal loans for down payment and publishing false price information to mislead buyers.

Among the 30 major cities that will scrutinize the local property markets are four toptier cities (Beijing, Shanghai, Guangzhou and Shenzhen), second-tier cities (mostly provincial capitals such as Nanjing, Hangzhou, Wuhan and Chengdu), and some smaller cities such as Yichang and Foshan, according to the ministry

notice.

Centaline Shanghai’s Lu attributed the stable home prices in top-tier cities to the most drastic measures ever adopted. “Comparatively, the tightening policies of second-tier cities are less stringent, and the market is becoming more and more tolerant toward the new measures that are getting stricter gradually.”

According to Zhang of Centaline Propety Agency, rising home prices in most second-tier cities have a lot to do with their policies for attracting talented professionals and skilled workers. One more reason is the lottery system that was introduced in some cities for new home purchases.

“More than 40 cities including Nanjing, Wuhan, Chengdu, Xi’an and Changsha announced a variety of favorable policies to attract talents such as offering local residence registration, setting up residential subsidiaries, and granting rent-free office areas. These policies may partly offset previous purchase limits in these cities,” Zhang said.

“In addition, 10 cities — Shanghai, Nanjing, Changsha, Chengdu, Hangzhou, Xi’an, Wuhan, Shenzhen, Qingdao and Fuzhou — introduced a lottery system for new home purchases, which has given homebuyers an impression that homes are in short supply.”

The latest round of tightening policies can be traced back to September 2016, when several cities started to put limits on home purchases. Such policies later spread nationwide in March 2017.

“Policy tightening centered on top-tier cities and tier-2 cities in the beginning, and started to penetrate into the rest of second-tier cities and some lower-tier cities,” said Xu Xiaole, chief market analyst with the Ke Research Institute, a research organization under the aegis of online real estate brokerage platform Ke.

Compared to previous tightening policies, Xu said the latest campaign has set up a record in terms of its scale, frequency and intensity. But to make such policies effective, what is required is high level of systematization and integrity, experts said.

“We are in the middle of establishing a long-term mechanism, including allowing equal rights for renting and buying properties, restructuring supply and demand in the sector,” said Chen Sheng, president of the China Real Estate Data Academy.

Chen further said China’s leadership appear to believe that existing measures seeking short-term market stability are not adequate.

Experts are unanimous that the real estate sector will see harsher rules in the second half of this year to achieve the twin goals of stable home prices and the establishment of a long-term mechanism for that.

The Beijing residential market will see more co-ownership housing and limited-price housing in the second half due to the government’s continual regulation of housing investment speculation, market insiders said.

“The two kinds of houses are conducive to the current status of the residential market; as a result, they are expected to see rapid development,” said Li Xiang, senior manager of the research and consultancy department of Savills.

Co-ownership houses could satisfy the demand from low-end customers. Such homes come at relatively lower prices, and limited-price houses could meet the demand from middle- and high-end customers for their price transparency, Li said.

According to Xu of the Ke Research Institute, as China has embraced urbanization, cities in major city clusters will be full of opportunities, but lower-tier cities with high stock of unsold housing units or sustained feverish bids for land parcels may hide risks.

“In recent months, lowertier cities are stealing the thunder of the home market from big cities as their housing prices continue to rise, thanks to fewer purchase restrictions. But major cities will regain their position as the hot spots for homebuyers. So, investing in lower-tier cities will face a risk of difficulty in recovering cost,” said Lu of Centaline Shanghai.

“Especially third- and fourth-tier cities that don’t have enough population and a strong industrial base to support their property prices are the places to avoid for investors,” Chen of the CREDA warned.

Yan Yuejin, director of the E-house China Research and Development Institution, a Shanghai-based real estate information and research services provider, said this is a situation that requires more practical measures at a fundamental level from local governments to discourage home prices from soaring. “The ultimate task of the macro policies is to lower the cost of homes for homebuyers.”