Provincial Capitals Use Sales Restrictions to Curb Speculative Real Estate Investment

A total of seven provincial capitals across China have stepped up their official controls on local property markets, with six of them introducing sales restrictions as part of efforts to curb short-term speculative investment.

According to domestic media reports the cities of Changsha, Chongqing, Guiyang, Nanchang, Nanning, Xi’an and Shijiazhuang, all of which are provincial capitals, ┬álaunched new property control policies during the two day period from 22 to 23 September.

Sales restrictions are a primary means by which the provincial capitals hope to contain their local property markets, with Chongqing, Nanchang and Nanning placing a ban on the transfer of real estate for at least two years from the date that title is obtained, while Changsha and Guiyang imposing a three-year ban.

Shijiazhuang has imposed the heaviest sales prohibition, putting the kibosh on the sale of newly bought residential homes – including both new commercial apartments and second-hand homes, for a five year period from the date of purchase.

Starting in March this year Beijing took the lead in the launch of property sales restrictions, with data from Centaline property indicating that by May nearly 30 Chinese cities had followed its lead with the implementation of similar measures.

The actions of the six provincial capitals in the past week brings the total number of Chinese cities implementing real estate sales restrictions to 44 in total.

Policymakers hope the sales restrictions will deter speculative investment by clamping down on transaction volumes, which is considered to be a key driver of high property prices in China’s urban centres.

Chinese property expert Ma Yingshu said to China Business that the sales restrictions may prove an effective means of curbing short-term speculative investment, but will do little to deter long-term investment demand.

“Sales restrictions in fact limit the liquidity of the second-hand home market, and are a heavy blow for short-term investors on the property market,” said Ma. “However, two or three year short-term investors are unlikely to comprise much of the investment demand for property in cities such as Nanning and Guizhou.

“Investors in these cities are likely focused on the investment returns reaped from longer-term investment.”

Ma notes that the current round of property controls nonetheless demonstrate the determination of provincial governments to combat speculative investment, and that further measures could follow in the next few months if real estate markets remain overheated.

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