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March 23, 2017

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Property bubble vexes puncture policies

AN acquaintance of mine who moved to Beijing from Shanghai about two years ago was aghast when an 80-square-meter apartment in Wangjing, a neighborhood beyond the Fourth Ring Road in the capital, hit the market at a price of about 13 million yuan (US$1.88 million).

On WeChat, he posted a photo of a sales chart in a real estate office, showing that larger units of about 200 square meters in the same new development were selling for prices ranging between 110,000 yuan and 130,000 yuan a square meter.

His posting was so surprising because it came just one day after Beijing’s municipal government stepped in to impose the harshest restrictions to-date on home buying in yet another stab at reining in a red-hot housing market.

The restrictions come on the heels of the National People’s Congress, which added language to its annual work report pledging to curb surging property prices in big cities.

Under Beijing’s new rules, the minimum down payment for a second home was raised to at least 60 percent from 50 percent for what are classified as “normal” houses, and to at least 80 percent from 70 percent for those defined as “non-normal.”

The city’s definition for “normal” is based on the location of homes within the capital’s ring roads. “Normal” ranges from 4.68 million yuan, or 39,600 yuan per square meter, within the Fifth Ring Road to those costing less than 2.808 million yuan, or 23,760 yuan per square meter, beyond the Sixth Ring Road. All other homes are deemed “non-normal.”

In addition, people who already own a home in the city or who have ever applied for a mortgage loan from either commercial banks or public housing funds are now categorized as “second-time buyers,” which puts an addition onus on their home-buying ability. It is a similar move to one adopted in Shanghai late last November.

The new rules stipulate that mortgage loans extended by either commercial banks or public housing funds must not exceed 25 years in duration. That compares to the previous maximum of 30 years.

Beijing was not alone in hitting the headlines across China. A wave of government curbs on buying property has swept the country.

At least half a dozen Chinese cities, including Beijing neighbors Shijiazhuang, Baoding and Langfang, Guangzhou, Changsha and Zhenzhou have slammed the brakes on home buying in the past week. Nationwide in March alone, more than 17 cities launched campaigns to let some air out of what is considered a dangerous market bubble.

In Guangzhou, for example, unmarried people with residence permits and non-local residents are now allowed to buy only one home in the provincial capital of Guangdong. Non-local residents qualify only if they can provide tax or social insurance certificates confirming that they have lived in the city for more than five consecutive years. Previously, they were entitled to buy a home after residing there for three straight years.

“The latest wave of tightening policies serves as evidence of the unwavering stance of the central government toward excessive home price increases in hot markets,” said Chester Zhang, associate director at Savills China Research. “Some major second-tier cities registered increasing home prices after the first-tier cities of Shenzhen and Shanghai both rolled out tightening measures in the last quarter of 2016.”

The trend is expected to continue.

“More cities around the country are expected to follow suit in coming months if property investment demand continues to pick up in lower-tier cities due to a ripple effect,” Centaline Property, a leading realty chain in the country, wrote in its latest market report. “It is possible that first- and major second-tier cities will introduce more price-restrictive policies, while second- and third-tier cities might roll out new home purchase restrictions to temper speculative demand.”

The latest round of government actions comes after China’s property market picked up pace again in February after a few months of slowing. That came despite a previous wave of rein-in measures implemented in many cities across country last autumn.

New home prices in February rose 0.3 percent after a 0.2 percent increase in January, according to Reuters calculations based on National Bureau of Statistics data released on Saturday for 70 major Chinese cities.

Of the 15 first- and select second-tier cities that the bureau tracks closely, 10 registered month-on-month price declines, down from 11 cities in January. The number of cities seeing price gains climbed from one in January to three last month, according to the bureau.

While February’s gain in prices might indicate that speculation has yet to be curtailed, new home purchases around the country continued to slow in the first two months of this year.

Between January and February, new homes valued at 912.1 billion yuan, excluding government-funded affordable housing, were sold across China. That was a year-on-year increase of 22.7 percent, the statistics bureau said earlier last week. That slowed from a 36.1 percent rise in 2016.

Skyrocketing home prices are not solely a concern in China. In countries such as the UK and Australia, fears have been raised about the repercussions of bubbles in housing markets. Those warnings come amid concerns that interest rates around the world, many at historic lows, will begin rising. Higher interest rates could spell trouble for people who have taken on high debt to jump on the property bandwagon.


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