New Round of Housing Controls Expected to Weigh on Prices in First-tier Chinese Cities

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One of China’s leading real estate analysts says that the latest round of property market controls launched by municipal governments around the country is likely to drive downward adjustments in housing prices for first-tier cities.

At least a dozen of China’s municipal governments unveiled new property control policies during the final week of March, including Changsha, Chengdu, Shenzhen and Wuhan.

Domestic media say the move marks the fifth round of property controls since the initial launch of policies to contain housing prices a year previously by the Beijing municipal government.

“Control policies have been unveiled by multiple regions in tandem just recently, which clearly indicates that there is the possibility that real estate controls will continue to intensify,” said Zhang Dawei (张大伟), chief analyst with Centaline Property to Securities Journal.

“In 2018 the vigour of control policies will continue, with marked divergences in the home price data for the 70 cities monitored.

“Prices in 3rd and 4th-tier cities that are destocking are expected to remain steady or rise slightly in 2018, while Beijing and other first-tier cities will continue to see year-on-year downward adjustments in 2018.”

Zhang expects property control policies to support efforts by the central government to expand the home leasing market in order to deal with overheating housing prices.

“Looking at things at present, hot-spot cities in the first and second-tier are all likely to intensify controls in relation to public fund policies, supply for inelastic housing demand, joint property rights for housing as well as the leasing market.

 

“In 2018 property control policies will mainly be directed at continuing to establish a residential housing system that places equal emphasis on leasing and purchasing, and the development of the residential home leasing market.

“Placing equal emphasis on leasing and purchasing is one of the policies for long-term control of the real estate sector, and encouraging leasing, stabilising leasing relations, and giving greater rights to tenants can avoid the major ups and downs of the real estate market, as well as reduce irrational demand for housing.”

While previous housing controls have focused on sales and purchasing restrictions,  a number of cities, including Changsha, Chengdu and Wuhan, have just opted to introduce a lottery system to address the issue of inelastic housing demand.

Zhang does not expect this to be an effective means, however, of resolving limited housing supply in China’s major cities.

“The main reason that the current round of real estate controls have adopted lottery policies is that pre-sale housing supply and demand relationship is tight in certain cities with price restrictions,” said Zhang.

“Some developers have not only refused home buyers who use public funds, they have even required the payment of full considerations. In these circumstances, the difficulty of buying homes under conditions of inelastic demand augments.

“While the lottery will certainly increase the likelihood that buyers subject to inelastic demand will be able to purchase a home, it still only addresses the symptoms instead of curing the illness.

“Following the launch of the lottery system, there is a very strong likelihood that the volumes of irrational queueing will increase for new homes, whose prices move contrary to those for pre-owned homes. ”

 

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