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Owning a home may just be a dream
April 15, 2011, Friday
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MORE than 90 percent of Chinese cities, including Shanghai, have announced how they will implement nationally-mandated price controls on property by the March 31 deadline.
But is the campaign to stabilize home prices boiling down to a slight-of-hand numbers game that may make local governments look good but does little to help middle-income home buyers who have been hammered by skyrocketing prices?
A total of 608 Chinese cities, or 92.5 percent of those required to outline their targets, have announced their annual plans to curb property prices for 2011 before the end of the first quarter, the Ministry of Housing and Urban-Rural Development said in early April, without identifying the 49 cities that failed to do so.
Many middle-income people seeking nothing more than to own a roof over their heads had eagerly awaited details of local government plans, which they hope would trigger home prices to drop. Now they aren't so sure.
Oddly enough, almost all cities that complied with the March 31 deadline have set their targets in an identical framework that allows home prices to continue rising, albeit at a slower pace. Their justification: household incomes will rise at a higher pace, roughly around 10 percent this year.
"It seems just ridiculous to set the price control target for homes in accordance with residents' income growth," said Ma Guangyuan, who holds a PhD in economics at the Chinese Academy of Social Sciences. "These are two totally incompatible figures."
Take Shanghai as an example. In 2010, the average cost of a new home, excluding those built under city-backed programs for low-cost and urban development relocation housing, reached about 2.6 million yuan (US$397,550), according to the China Real Estate Information Corp.
During that same period, the average disposable income of urban residents in Shanghai rose 10.4 percent to 31,838 yuan, according to the local statistics bureau.
If prices are equated with rising income levels, the average cost of a new home could increase to 2.8 million yuan in Shanghai this year without violating the new guidelines. The problem for many potential home buyers is this: if incomes rise as much as prices, that pretty much leaves them where they have been - shut out of the market.
Meanwhile, to make matters worse, the majority of cities that have announced their price control plans said that year-on-year price control targets will be calculated on all residential property, including those built under low-cost, affordable housing programs and those built to relocate residents dislodged by new construction projects.
That means the price of housing for middle-income home buyers ineligible for affordable housing programs will be distorted.
"Without tapping the core of the problem of soaring prices, which are mainly confined to the mainstream housing market, targets of the kind released by local governments won't likely have any impact on curbing home prices," said Sky Xue, an analyst with China Real Estate Information.
Taking Shanghai as an example again, on March 28, the city became the first of the biggest urban areas to unveil its annual property-price control targets.
Under the city's plan, any increase in new home prices, based on a valuation of all residential properties, wouldn't be larger than the 8 percent target for economic growth this year. According to that line of reasoning, increases in home prices wouldn't be any larger than the projected rise in local residents' incomes.
The devil is in the details, of course.
A total of 16.85 million square meters of mainstream residential housing was sold in the city last year, compared with 7.35 million square meters of government-backed low-cost and subsidized housing.
The average price for both classes, taken together, was 14,213 yuan a square meter, compared with 20,955 yuan for houses not built under affordable housing programs, the Shanghai Statistics Bureau said.
The city government has announced that 11.5 million square meters of affordable housing will come into the market this year, the majority of units earmarked for relocated residents and low-cost apartments.
At the same time, the number of mainstream homes for sale may fall as central government moves to curb prices start to bite.
The State Council, China's Cabinet, added eight new measures to its arsenal of bubble-busters at the end of January. Down payments on second homes have been raised to 60 percent from 50 percent, and people are now banned from buying beyond two homes. Newer residents to Shanghai are limited to owning just one home.
With mainstream homes on the decline and cheaper homes in affordable housing programs on the rise, the overall average price of housing in Shanghai is certain to look modest if not lower on paper. For middle-income home buyers, a relief from rising property prices will be a numerical illusion.
During the first quarter, sales of homes not in affordable housing programs totaled 1.64 million square meters, an annual fall of 10 percent, said Shanghai Uwin Real Estate Information Services Co. Prices haven't dropped.
"The latest slew of tightening policies from the central government - in particular, the home purchase ban - will have a very huge impact on local middle-income home buyers," said Joe Zhou, head of research consultancy at Jones Lang LaSalle Shanghai.
But is the campaign to stabilize home prices boiling down to a slight-of-hand numbers game that may make local governments look good but does little to help middle-income home buyers who have been hammered by skyrocketing prices?
A total of 608 Chinese cities, or 92.5 percent of those required to outline their targets, have announced their annual plans to curb property prices for 2011 before the end of the first quarter, the Ministry of Housing and Urban-Rural Development said in early April, without identifying the 49 cities that failed to do so.
Many middle-income people seeking nothing more than to own a roof over their heads had eagerly awaited details of local government plans, which they hope would trigger home prices to drop. Now they aren't so sure.
Oddly enough, almost all cities that complied with the March 31 deadline have set their targets in an identical framework that allows home prices to continue rising, albeit at a slower pace. Their justification: household incomes will rise at a higher pace, roughly around 10 percent this year.
"It seems just ridiculous to set the price control target for homes in accordance with residents' income growth," said Ma Guangyuan, who holds a PhD in economics at the Chinese Academy of Social Sciences. "These are two totally incompatible figures."
Take Shanghai as an example. In 2010, the average cost of a new home, excluding those built under city-backed programs for low-cost and urban development relocation housing, reached about 2.6 million yuan (US$397,550), according to the China Real Estate Information Corp.
During that same period, the average disposable income of urban residents in Shanghai rose 10.4 percent to 31,838 yuan, according to the local statistics bureau.
If prices are equated with rising income levels, the average cost of a new home could increase to 2.8 million yuan in Shanghai this year without violating the new guidelines. The problem for many potential home buyers is this: if incomes rise as much as prices, that pretty much leaves them where they have been - shut out of the market.
Meanwhile, to make matters worse, the majority of cities that have announced their price control plans said that year-on-year price control targets will be calculated on all residential property, including those built under low-cost, affordable housing programs and those built to relocate residents dislodged by new construction projects.
That means the price of housing for middle-income home buyers ineligible for affordable housing programs will be distorted.
"Without tapping the core of the problem of soaring prices, which are mainly confined to the mainstream housing market, targets of the kind released by local governments won't likely have any impact on curbing home prices," said Sky Xue, an analyst with China Real Estate Information.
Taking Shanghai as an example again, on March 28, the city became the first of the biggest urban areas to unveil its annual property-price control targets.
Under the city's plan, any increase in new home prices, based on a valuation of all residential properties, wouldn't be larger than the 8 percent target for economic growth this year. According to that line of reasoning, increases in home prices wouldn't be any larger than the projected rise in local residents' incomes.
The devil is in the details, of course.
A total of 16.85 million square meters of mainstream residential housing was sold in the city last year, compared with 7.35 million square meters of government-backed low-cost and subsidized housing.
The average price for both classes, taken together, was 14,213 yuan a square meter, compared with 20,955 yuan for houses not built under affordable housing programs, the Shanghai Statistics Bureau said.
The city government has announced that 11.5 million square meters of affordable housing will come into the market this year, the majority of units earmarked for relocated residents and low-cost apartments.
At the same time, the number of mainstream homes for sale may fall as central government moves to curb prices start to bite.
The State Council, China's Cabinet, added eight new measures to its arsenal of bubble-busters at the end of January. Down payments on second homes have been raised to 60 percent from 50 percent, and people are now banned from buying beyond two homes. Newer residents to Shanghai are limited to owning just one home.
With mainstream homes on the decline and cheaper homes in affordable housing programs on the rise, the overall average price of housing in Shanghai is certain to look modest if not lower on paper. For middle-income home buyers, a relief from rising property prices will be a numerical illusion.
During the first quarter, sales of homes not in affordable housing programs totaled 1.64 million square meters, an annual fall of 10 percent, said Shanghai Uwin Real Estate Information Services Co. Prices haven't dropped.
"The latest slew of tightening policies from the central government - in particular, the home purchase ban - will have a very huge impact on local middle-income home buyers," said Joe Zhou, head of research consultancy at Jones Lang LaSalle Shanghai.
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