Under control

Looking to shrink sales

WiC has written extensively about price controls in recent months. Now it is the property sector’s turn to come in for similar treatment to cabbage, coal and cotton, as part of the Chinese leadership’s ongoing war with inflation.

In fact, the policymakers are already claiming that the first series of battles are won, after the release of a 70-city survey from the National Bureau of Statistics.

“Speculative housing demand has been contained, and the sales volume of new and existing homes dropped month-on-month while home prices stayed generally stable,” confirmed the State Council in an accompanying statement released last Tuesday.

First tier cities seem to have been among the most responsive to the cooling measures. Prices in Beijing were up 4.9% in March, down from a 6.8% gain in February. In Shanghai they were up 1.7%, down from a 2.3% increase the month before. More commented upon is that transaction volumes have fallen much further (in Beijing they halved since the first quarter of last year). That followed the adoption of various measures, such as restricting residents in major cities from buying second or third homes, requiring higher downpayments for mortgages and a series of policies that have forced up developers’ borrowing costs.

But the measure now getting widest media discussion is a straight cap on property price increases, the 21CN Business Herald reports. The newspaper gives the city of Shenzhen as an example, outlining how developers were told that they would have to implement a price-capping scheme from May 1. According to the new rules, prices may not increase by more than 5% on last year’s levels. Local bureaucrats are responsible for calculating the averages to employ across different residential areas in the city.

The real estate magnates themselves seem resigned to a greater steer from the bureaucrats. “This is no longer commercial real estate but capped-price housing,” Feng Lun, president of the developer Vantone, told an industry gathering in Weifang last week. “On the sale licences we receive from the government, the sale price of each suite is clearly priced”.

Pan Shiyi, chairman of SOHO China offered a similar prognosis to journalists in Beijing. Before this year property prices were largely market-driven, he noted. But now it is the government with the “final say”. A survey collected from property developers in the city shows the lowest level of industry confidence for two years, says 21CN.

Not that this will especially disappoint the State Council, which is keen on keeping up the news flow on its policy tightening measures.

But most analysts seem to agree that it is still too early to reach a definitive conclusion on the success of the policy onslaught. Market reaction is skittish: several mainland developers listed in Hong Kong saw their share prices fall on additional news this week that sales transactions in a separate 18-city survey had actually jumped over 25% week-on-week (although they were still down on the same period last year). Market concern was that the news would stiffen regulators’ resolve to introduce further measures in the weeks ahead.

Another thing to look out for is greater tension between central and local officials, once the new restrictions start hitting local governments in the pocket.

For instance, a National Bureau of Statistics survey indicated that prices fell further last month on the island of Hainan (previously a hot spot for speculators; see WiC48) than anywhere else in China. But the Economic Observer was also reporting this week that the city of Haikou (on Hainan) has already decided to abandon “purchase limit” rules that it has employed to block sales to buyers from outside the island.

The reason? Its tax revenues from construction activities fell by a third in the first quarter, and real estate sales tax proceeds were down by more than two thirds. Last year, real estate proceeds accounted for at least a quarter of Haikou’s fiscal revenue, EO says.

Expect other local governments to feel the pinch too. Property remains a major source of revenue for cities, and one that it will be tough to forgo (see WiC64).

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