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December 19, 2009

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Home » Business » Real Estate

Land speculators face deposit clamp

CHINA yesterday raised the down-payment requirement for land acquisitions to at least 50 percent of the total price, the latest initiative to rein in the country's overheated real estate market.

The regulation is effective immediately.

According to a joint statement released by five government departments, including the Ministry of Finance, the Ministry of Land and Resources and the People's Bank of China, real estate developers are required to pay at least half of the land price as a down payment.

Up until now the widely accepted deposit figure has been between 20 and 30 percent.

Under yesterday's ruling, total price of the land must generally be paid off within a year.

In some circumstances, this period can be extended but to no more than two years.

"The policy, if enforced strictly, will have a direct impact on the country's land market," said Zhang Qi, an analyst with China Index Academy, a major real estate research organization.

"Raising the capital threshold to acquire plots of land can effectively prevent real estate developers from hoarding the purchases."

To date, there has been no official state requirement either on the down payment for land purchases or a purchase time frame, according to industry analysts.

Land sales soared in 2009 across the country as strong buyer sentiment among both end-users and investors has been pushing property prices to record figures.

Land sales in 70 major cities more than doubled in value in the first 11 months of 2009.

The spree was led by Shanghai, Beijing and Hangzhou, which sold plots worth 82.1 billion yuan (US$12.02 billion), 63.9 billion yuan and 52.3 billion yuan, respectively, as of November 23, according to a recent research report by the academy.

That compared to 38.2 billion yuan, 50.3 billion yuan and 50.7 billion yuan registered in the three cities during the entire year of 2008.

The increase in land sales was mainly due to cash-in attempts on soaring prices.

For instance, in Shanghai, average land prices jumped about 132 percent to 7,445 yuan per square meter in the first 11 months, as of November 23, according to the report.

The new down-payment and time-frame policy, posted yesterday on the Website of the Ministry of Finance, is the second major attempt announced in less than 10 days by the central government to put the brakes on the real estate roller coaster.

Last week, the State Council, the nation's Cabinet, said it would reintroduce the 5.55 percent business tax effective next year for people who sell homes less than five years after purchase, a move mainly aimed to curb speculation.

Individuals are now exempt from the tax if they sell their homes two years after purchase.

The country's urban housing prices rose 5.7 percent year on year in November, the biggest increase in 16 months.

On a month-to-month basis, property prices in 70 major Chinese cities advanced 1.2 percent, the ninth consecutive gain, according to the National Bureau of Statistics.

A central bank survey released this week also showed that two-thirds of Chinese view property prices as being too expensive.


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