26 April 2019

Beijing’s new public housing scheme may foster two-tier market

After official data indicated that new home prices in Beijing went up 20.6 percent year on year on average in September, the local government announced this week that it will boost the supply of affordable housing.

The capital city has vowed to offer by the end of this year land that can facilitate the construction of 20,000 such homes, while also pledging more supply next year for another 50,000 units.

Those units, very similar to those in the Hong Kong Housing Ownership Scheme, will be sold at 30 percent below the market value under an owner-occupancy scheme, and can only change hands after five years of purchase. In the event of a sale after five year, 30 percent of any capital gain has to be surrendered to the government.

Sino-Ocean Land Holdings Ltd. (03377.HK), one of the biggest property developers in Beijing, has seen its share price come under pressure over the last few days on concerns that the new curb may put an end to the red hot housing market there. Such worry, however, seems to be misplaced.

A total of 70,000 home units under the plan is just equivalent to combined transaction volume of 3 months in the city, according to mainland media. But they won’t be available in the coming two years if one takes the construction cycle into account. When completed, the homes are mostly likely to put on the market in batches rather than at one go.

The new supply, therefore, will come only after a while and the impact on Beijing home prices now is likely to be limited.

The real impact could be that if this affordable housing plan succeeds, the residential property market may evolve into two major segments. One will comprise less expensive units, but with restrictive title deeds, to cater to the genuine demand while the other segment will comprise units offered at market prices offering complete property rights. Such two-tier market could strike a fair balance between the interests of existing owners or investors in commodity housing and the genuine but underfinanced buyers.

By that time, the municipal government may have more leeway to relax some of the housing curbs such as purchase and mortgage restrictions, allowing the overall market in Beijing to better reflect demand and supply.

– Contact the writer at [email protected]


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