Municipal Real Estate Controls on Track to Intensify

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Analysts expect the real estate market control policies launched by China’s municipal governments to continue unabated following the launch of new measures by more than a dozen cities since March.

China’s municipal governments began to launch real estate market controls in March of last year with the goal of cooling down overheating property prices, starting with Beijing’s unveiling of “the strictest housing market control policy in history.”

Over 110 cities have since followed Beijing lead, with the launch of more than 250 market control policies over the past year, encompassing, sale and purchase restrictions as well as a clamp down on bank lending to home buyers.

The market control polices proved effective at containing rampant growth in housing prices in major urban centres such as Beijing and Shenzhen, while data from the National Bureau of Statistics also indicates that new commercial housing sales prices for first-tier cities posted a 0.1% year-on-year decline in February.

Speculation emerged at the start of the year, however, that China’s municipal governments would start to dial back the real estate controls, with some cities using the pretext of policies designed to attract skilled personnel to relax purchasing restrictions.

The Gansu province capital of Lanzhou rattled markets by announcing the annulment of certain property purchase restrictions at the start of 2018, fostering the spread of rumours that other provincial capitals would loosen their own controls, including Nanjing and Hefei.

These rumours have proved to be displaced, however, with more than a dozen major cities around China issuing new property control policies since the Two Sessions in March, including Changsha, Chengdu, Dalian, Guangzhou, Hangzhou, Kunming, Wuhan, Shenzhen and Xi’an.

“Overall, this round of property market control policies are a continuation and deepening of preceding related policies,” said Bai Yanjun (白彦军), chief research supervisor of the China Index Academy to China Economic Net.

According to Bai the current round of controls involve both the launch of control policies by cities and counties that did not previously have them in place, such as Dalian and Funan; as well as the deepening of existing policies.

Hainan has intensified its purchasing restrictions, while Shenzhen is targeting the “yin-yang contracts” used to dodge lending curbs, and Hangzhou and Xi’an are implementing a lottery system to allot purchases.

According to Zhang Bo (张波) the new round of property controls launched since March have three distinguishing features.

The first is key cities have intensified short-term controls, as exemplified by the property purchase restrictions introduced in Dalian or the strengthening of existing real estate purchase restrictions in Hainan.

The second is efforts to standardise and better regulate real estate transactions, with Shenzhen targeting yin-yang contracts and Hangzhou using a lottery system to determine purchasers.

The third is more implementation of more targeted policies by municipal authorities, specifically tailored to suit local market conditions.

Another key feature of the latest round of property control policies have has been the introduction of measures to protect buyers whose demand for housing is inelastic, by shoring up low-cost supply or providing them with preferential purchasing conditions.

In the Hunan province capital of Changsha, for example, the municipal government has required that developers of low-cost commercial apartments in areas subject to purchasing restrictions prioritise the sale of units to first home-buyers.

Chengdu has also introduce a “referential lottery” for the purchase of commercial housing by households subject to inelastic demand.

According to Yan Yue (严跃), chief analyst at the Shanghai E-House Real Estate Research Institute the biggest innovation of current policies is the introduction of the preferential purchasing model.

“This form of policy method in fact intended to put pressure on speculative investment,” said Yan.

 

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