On a deadline

Why threat of a new property registry could add to panic selling

Lightning is seen above buildings in Beijing

Fright night ahead for property firms?

The grocery gimmick ‘buy one get one free’ often means that customers purchase more of a regularly priced good in order to get an extra item that they often don’t need. It’s considered such a problem that a House of Lords committee in the UK has even urged retailers to end the practice, which leads to the “morally repugnant” waste of 15 million tonnes of food every year.

But Chinese property bosses are keen to use the ruse as a marketing tool to combat a slowing market. Their own supersized “buy one get one free” offers are now being spotted adorning many of the incomplete residential projects that developers are trying to pre-sell. What they are offering applies to homebuyers who snap up two or more adjoining apartments in a single purchase. The developer then agrees to bore through ceilings or walls to create bigger units or duplexes. Such “special units” tend to command higher asking prices.

Then again, Chinese property hunters still want to drive a harder bargain, it seems. Take Season Joy City, a 12-tower residential project in Beijing. It has been on sale at an average price of Rmb14,800 ($2,387) per square metre. Along with the ‘buy one get one free’ offer, the developer has been trying to tempt buyers with a party bag of bonuses including free kitchen fittings and air conditioners.

But the Wall Street Journal says that only a third of the available units were sold until Season Joy City became the first Beijing residential project to offer a ‘zero down payment’ scheme. Loans arranged by the developer – to top up mortgages from the banks – mean that most investors only need to sign their names to become homeowners. No cash is required.

That’s a sign of how desperate the situation is becoming…

Regular WiC readers will be familiar with the increasingly gloomy mood in the property market. Even China’s biggest developer Vanke doesn’t see much chance of a rise in home prices “unless the government pushes out another few trillion of fiscal stimulus” (see WiC236). Confirming the bleak outlook, average prices for new homes fell 0.3% in May from April, registering their first decline since June 2012, according the China Real Estate Index System, which pulled data from 100 cities. Up to 62 cities surveyed have registered a month-on-month price decline.

“Overcapacity, overleveraging and overpricing are the three most notable symptoms of a property bubble. All three now exist in the Chinese real estate market,” Shih Wing-ching, founder of property agency Centaline, told CBN late last month. “We have tens of thousands of frontline staff. They are our sensors and what we feel now should be largely accurate.”

Centaline is based in Hong Kong although the agency has expanded to more than 30 mainland cities, focusing mainly on sales in the secondary market. According to Shih, Xi Jinping’s anti-graft campaign has been weighing heavily on sentiment. “Not only buying demand from [government] officials has evaporated. Feedback from our frontline staff suggests there is a large proportion of fire sales coming from officials, adding downward pressure to the market,” Shih told CBN.

Why are officials thinking about selling? Probably because the prospects for easy profit look less enticing. But perhaps too because regulators are making renewed noises about establishing a nationwide property registration system. WiC last reported on the arguments in favour of a centralised ownership database (a formal land registry) in issue 182.

Open and transparent records would help to expose illicit wealth, especially that of public employees with large property portfolios that defy their meagre salaries. On that basis, bureaucrats have been dragging their heels on the plans for years.

In April the Ministry of Land and Resources announced a more definitive timetable, saying it will submit regulations for an integrated registry to the State Council by the end of December. According to its other milestones, the registry should be fit for purpose within three and a half years.

“China is developing the foundation of a unified property registration system this year. In 2016 it will establish the property registry and before 2018, the platform for information management will be operational,” it said.

Information will then be made available to authorities including judicial departments and the disciplinary watchdogs that investigate corruption officials.

The regulations aim at creating a registration system for all fixed assets including buildings, farmland, forests and coastal waters. The legislation will also incorporate the so-called “sunshine law” compelling government officials to declare all of their family’s assets to the public.

“Real estate registration will protect owners’ properties. It will directly help to pave the way for the launch of a property tax and indirectly assist the anti-corruption drive,” the Economic Observer suggested.

But has the news really frightened illicit homeowners into selling their properties already? Some observers believe the impact of the registry plan has been exaggerated.

“Officials prefer to stack cash at their homes instead of their bank accounts [see last week’s issue for one example], so do you think corrupt officials dare to put all these apartments under their own names?” an op-ed at China Youth Daily asked.

Last year Zhao Haibin, a low-ranking official in Lufeng’s police bureau, was caught forging identities to acquire at least 192 apartments.

Cai Bin, another low-ranking bureaucrat from Guangdong province, was exposed for owning 22 homes.

And even if thousands of officials like Zhao and Cai are suddenly prepared to sell their portfolios, is there sufficient demand to absorb the new supply?

WiC wonders whether the 2018 timeline is set in stone too. Putting aside the mixed incentives for public officials tasked with implementing the plan (nobody really knows how many civil servants have scooped up properties surreptitiously), the database has now been expanded to cover wider land use, drawing in a fuller range of government bodies. More bodies, more potential for delays.

“The regulations could be impeded for years as the interests of many ministries are involved,” an unnamed official with the Land and Housing Ministry confided to the Economic Observer.

Meanwhile, the central government seems fully aware of what an extended property slump could do to the wider economy. In April the People’s Bank of China cut reserve requirements for some rural banks and a month later it called on the biggest lenders to accelerate the granting of home mortgages.

This week the central bank also unveiled further plans to allow some of the banks to lend more of their deposits in another move designed to bolster slowing economic growth.

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