Roof collapses on dreams of buying a new home
A SWING and a miss. That’s how Shanghai native George Wang felt when an abrupt municipal policy change late last month dashed his high hopes of buying a new home.
At the end of October, after perusing apartments across the city for almost a year, the commercial video producer in his mid-30s finally signed a preliminary contract to buy a 100-square-meter apartment in the Pudong New Area.
His bachelor’s choice was a two-bedroom furnished unit, located on the 10th floor of a 20-year-old high rise within a stone’s throw of the Century Avenue Metro hub. Price: 7.4 million yuan (US$1.07 million).
To qualify as a “first-time home buyer” under municipal policy restrictions, Wang sold an old, tiny downtown flat that he and his parents jointly purchased some years earlier. Single native Shanghainese are allowed to own only one home in the city under current policies.
Wang planned to pay a minimum 30 percent down payment and seek a 20-year mortgage for over 5 million yuan, financed by both a commercial lender and the city's public housing fund, which provides cheaper lending rates. That would mean monthly repayments of more than 20,000 yuan — not a small sum for an ordinary wage earner but still manageable for Wang.
Every step of the process was planned and proceeding well — until the night of November 28. Out of the blue, the Shanghai government announced a new round of property tightening measures, effective the next day.
It was the third time this year that local officials had hit the brakes on home buying to try to siphon some of the froth out of property prices. The new policies were also the toughest to date.
Effective November 29, buyers of first homes had to pay a minimum 35 percent down payment, compared with 30 percent previously. Moreover, the term “first-time homebuyers” would apply only to those who don’t own a home in the city and have never applied for any mortgage from either commercial banks or public housing funds anywhere in the country.
Suddenly, Wang found himself categorized as a “second-time home buyer,” which automatically meant he would have to pay a minimum 70 percent if he was purchasing a “non-normal” home and 50 percent if it were classed as “normal.”
“Normal” homes within the Inner Ring Road are defined as those no larger than 140 square meters and costing less than 4.5 million yuan. Between the Inner and Outer Ring roads, “normal” houses are those costing under 3.1 million yuan, and beyond the Outer Ring Road, the threshold drops below 2.3 million yuan.
All other homes are deemed “non-normal.”
For Wang, the new government edict was the death knell of his plans. He had already paid off the mortgage on the tiny walk-up flat that he sold.
The government stipulated that those who had finished the online registration of new housing contracts before November 28 would be exempt from the new policy. Wang hadn’t.
“In just a few hours, the deposit I would have to pay on my new home shot up to 5.18 million yuan from 2.22 million yuan,” he said. “Beyond my means; mission impossible. There was no option left but to abandon my plans.”
Wider influence
Wang is not alone in feeling whipsawed by government policies. A large proportion of homebuyers reportedly have been stymied by the new rules.
Currently, about 90 percent of homebuyers who purchase units within the Middle Ring Road and 60 percent of those purchasing property within the Outer Ring Road are upgrading their accommodation, according to Shanghai Centaline Property Consultants Co, a major realty chain in the city.
“Due to high home prices and different mortgage policies for different applicants, many of those upgrading homes have sold their smaller, older apartments to qualify as “first-time buyers” and gain access to preferential mortgage policies," said Lu Wenxi, senior manager of research at Centaline. “Now that ‘bypass’ has been blocked and most of them will be required to put down a minimum 70 percent deposit.”
What’s frustrating for both the government and those wanting to buy homes is that all the various measures aimed at deflating the property bubble seem to slow purchase transaction volumes but don’t dent rising prices.
Demand is so great that people remain a formidable buying force even as homes become less and less affordable.
“The latest batch of tightening measures are very tough and will no doubt drag down new home transaction volumes next year, maybe to 2014 levels,” said Joe Zhou, head of China research at JLL, a global real estate consultancy. “However, we still see scant possibility of a drop in prices because demand from upgrading families and younger talent flowing in from other parts of the country outstrips housing supply.”
The existing home market is expected to show a similar picture. Transaction volumes may drop but individual sellers may feel under no pressure to reduce their asking prices, he said.
Zhou’s vision is shared by UBS Asset Management, which has recently published a Chinese residential real estate research report.
It said Tier 1 cities, which offer superior social amenities, more modern lifestyles and quality health care facilities, will continue to be a magnet for domestic capital, even though the supply of land for new construction in mega-cities is limited. That suggests no amelioration in overheated prices, according to the report.
However, it said, prices could begin to stabilize a bit if the cool-down policies bite hard enough. Latent demand will remain resilient regardless.
UBS estimates put the excess supply-over-sales ratio close to two months for Tier 1 cities, compared with 18 months in Tier 2 cities and 27 months in the rest of China.
Centaline Property research tracking the performance of the country's 10 major real estate developers in the first 11 months of this year showed them doing very well despite all the vagaries of the market.
Eight of 10 developers, including China Vanke Co and China Evergrande Group, comfortably exceeded their 2016 sales targets one month ahead of schedule, while the remaining two have come very close.
“The majority of developers have registered very good sales and solid cash flows, indicating little chance of them offering major price cuts anytime soon,” according to the Centaline report.
“Owner-occupiers who can still afford a home in Tier 1 cities should probably proceed with their purchase plans because upward pricing pressure looms large in gateway cities,” Li Daokui, an economics professor at Tsinghua University, told a financial forum held by CCTV earlier this month.
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