Curb your enthusiasm

City bosses try to make life harder for property purchasers

Property w

“I’ll buy the lot”

Some would say marriages are built on trust. Few say the same about divorces. But a rumour last September that Shanghai would change property purchase laws to give less favourable terms to new divorcees sparked a rush of separations, as devoted couples severed the knot so that they could keep buying houses (see WiC339).

Other municipalities have also made changes aimed at preventing speculation in their local property markets. Chengdu, for example, restricted owners to a single unit in any of its prime districts in October last year, and raised minimum downpayments to 40%. The following month city authorities drew an even tighter circle, requiring buyers to be residents or taxpayers in the targeted districts.

However, the watershed moment was March of this year, when Beijing’s municipal government introduced its own round of restrictions. Dubbed the harshest measures to date, the rules raised minimum downpayments on second home purchases by 10 percentage points, taking the minimum level as high as 80%. The city also expanded its definition of a “second-time buyer” to include anyone with a mortgage history, regardless of whether they currently owned a property.

Although these cooling measures were intended to target speculators, families trying to upgrade to larger homes also ran into problems as they were more likely to incur the maximum downpayment rate. But the changes did prove effective. In June, property prices in the capital fell for the first time in two years, and data from August suggested that new house prices in tier one cities were growing at an annualised rate of less than 5%, much lower than the 30% being reported in some locations early last year.

“Beijing’s latest policies send a strong signal that price controls are likely to heighten in other big cities. There will be no easing in controls before the 19th Party Congress,” an analyst at E-House China R&D Institute told the South China Morning Post.

The observation was astute: at least 100 cities have implemented measures to curb speculative purchases, including another eight locations last month, just weeks before the Party Congress. Among them: Chongqing, Changsha and Xi’an banned sales within two to three years of purchase, while Shijiazhuang extended the ban to five years. The longest freezes on reselling are in Zhuhai in Guangdong province and Baoding in Hebei, where buyers must hold their properties for minimums of 10 years.

Reports on the curbs sowed doubt among investors in some of the leading property developers. Hong Kong-listed China Evergrande saw its shares fall 6.3% in one session, while China Resources dropped 5.5%. The Hang Seng index’s real estate segment was dragged down 1.8%. (All have since recouped their losses.)

Zhang Dawei, chief analyst at Centaline Property, told China Daily that more cities are likely to join the cooling measures thank to a trickle-down effect. As large metropolises impose restrictions, property hunters divert cash to lower-tier cities with fewer regulations, heating those markets to a point where they will soon need cooling too.

Another target for the government are the creative workarounds employed by buyers. For instance, the Financial Times says that regulators have told banks to crack down on cases of consumer loans being used for home purchases. The directive targets “short-term household loans”, which totalled Rmb1.28 trillion ($192 billion) in the first eight months of this year, compared to Rmb651 billion for the entirety of 2016. In Beijing, banks have been ordered to review personal loans over Rmb200,000 and “household operation loans” (intended to finance family businesses) above Rmb1 million. And in Hangzhou, a branch of Postal Savings Bank was fined Rmb650,000 for knowingly providing a consumer loan as a housing loan.

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