Shang­hai tight­ens non-lo­cal home­buyer rules

The Pak Banker - - 6BUSINESS -

Shang­hai un­veiled a pack­age of mea­sures de­signed to stem a surge in prop­erty prices in the me­trop­o­lis, un­der­scor­ing how reg­u­la­tors in top-tier cities are shift­ing gears in an econ­omy where hous­ing has been a brake on growth in re­cent years.

The lo­cal gov­ern­ment will tighten ap­proval cri­te­ria for non-res­i­dent home­buy­ers, raise down-pay­ment re­quire­ments for some sec­ond homes and ban un­reg­u­lated lend­ing, Gu Jin­shan, chief of the city hous­ing man­age­ment com­mis­sion, said at a press con­fer­ence Fri­day.

Shang­hai, where new home prices soared 21 per­cent in Fe­bru­ary from a year ear­lier, be­comes the first large city to tighten res­i­dence-buy­ing re­quire­ments. It is tak­ing ad­van­tage of greater free­dom from the cen­tral gov­ern­ment for lo­cal au­thor­i­ties to deal with diver­gent prop­erty mar­kets across the coun­try. In first-tier cities, stim­u­lus in­tended to boost slug­gish real-estate in­vest­ment led to a home-buy­ing frenzy.

Finance-cen­ter Shang­hai has seen "panic buy­ing" and phony di­vorces that can dou­ble a cou­ple's buy­ing power, Gu said. The lo­cal mar­ket has also been af­fected by a in­flow of funds from other re­gions, and from the stock mar­ket, which plum­meted in mid-2015.

Shang­hai will limit home­buy­ing el­i­gi­bil­ity to those who have paid in­come taxes and so­cial in­surance for at least five years con­sec­u­tively, up from two years now, Gu said. It also will re­quire a down pay­ment of at least 70 per­cent for sec­ond homes larger than 140 square me­ters or more than 4.5 mil­lion yuan ($691,000) in value, and re­quire at least 50 per­cent down pay­ments for other sec­ond homes, Gu said. That com­pares with a 40 per­cent na­tion­wide thresh­old set by the cen­tral bank in March, when it loos­ened the re­quire­ment.

The rules, which take ef­fect Fri­day, are likely to be­come a "turn­ing point" for prop­erty poli­cies in big cities, Zhou Hao, an econ­o­mist at Com­merzbank AG in Sin­ga­pore, wrote in a note Fri­day. China has shifted to a more dy­namic pol­icy ap­proach rather than a "one-size-fits-all" strat­egy, he said.

Shang­hai of­fi­cials also said they will ban home de­vel­op­ers and real-estate agen­cies from of­fer­ing down-pay­ment loans, bridge loans and other un­of­fi­cial lend­ing, a prac­tice that Peo­ple's Bank of China Gover­nor Zhou Xiaochuan re­cently cited as a risk. Gu said Shang­hai is ex­am­in­ing de­vel­op­ers and real­tors and may sus­pend their li­censes if they have vi­o­lated rules.

"Liq­uid­ity is rel­a­tively abun­dant and real estate in first-tier cities has be­come the main des­ti­na­tion for 'float­ing cap­i­tal,'" Gu said of the rea­sons for home­price gains that are "too fast." "Since last year, cap­i­tal from the credit mar­ket, stock mar­ket and funds in other cities have flowed to real estate."

Even af­ter the news, the Shang­hai Stock Ex­change Prop­erty Index, which tracks real estate-re­lated stocks listed on the main­land ex­change, halted three days of losses to close 0.9 per­cent higher Fri­day and pare this year's de­cline to 16 per­cent. Shang­hai, in the Yangtze River delta on the East China Sea, is one of the world's largest cities, with a pop­u­la­tion, at 24 mil­lion, that's al­most a third larger than it was a decade ago, ac­cord­ing to Na­tional Bureau of Sta­tis­tics data. Along with Bei­jing, Tian­jin and Chongqing, it's one of four di­rect-con­trolled mu­nic­i­pal­i­ties, giv­ing its gov­ern­ment the same sta­tus as a prov­ince.

The value of Chi­nese prop­erty sales in the first two months of this year surged 43.6 per­cent from a year ear­lier, while dou­bling in some larger cities. In­vest­ment in real-estate devel­op­ment gained 3 per­cent in the first two months from a year ear­lier, com­pared with a 1 per­cent in­crease through­out 2015.

China also faces "rel­a­tively big" down­ward pres­sure from ef­forts to elim­i­nate ex­cess hous­ing in­ven­tory, which may sup­press prices na­tion­wide, he said.

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