It’s really just a token gesture. On Nov. 8, Shanghai, the nation’s biggest city raised the minimum down payment for second-home purchases from 60 percent to 70 percent.
Given that these transactions account for less than 20 percent of home loans, the increase is unlikely to make any major dent in the runaway train that is housing prices.
The move is another sign that the authorities in Shanghai are still hesitant to do much to tackle the tricky issue. And with little blowback from the central government, it appears Beijing is taking more of a hands-off approach to the property market, leaving the market forces to play the major role while the central authorities focus on improving housing for the poorest, observers said.
Shanghai’s down payment increase mirrors moves by other first-tier cities like Beijing and Shenzhen but the new limit will affect only a small group of potential buyers. It will do little to help major cities look meet targets for home price caps that they’re almost certain to miss, market watchers said.
Home prices surged 17 percent in Shanghai in September from a year earlier, the third-biggest gain in the 70 cities the government tracks and just behind the 20 percent jump in the southern business hubs of Shenzhen and Guangzhou.
The rapid increase defied a four-year government campaign to cool the property market. “Home prices are under mounting upward pressure with rising trading volumes,” Shanghai’s housing bureau said.
The city has made other gestures to ease some of that pressure. For instance, non-resident families now have to pay monthly social security contributions or income tax in Shanghai for two years before they qualify to buy their first home there. Previously the rule was one year.
But much more is needed to confront the problem. Instead of trying to dampen demand, the authorities would be better off expanding supply through releases of collective land, imposing an effective property tax and giving domestic investors other outlets for their funds than the residential real estate, according to a report from Colliers International.
After years of failed attempts to rein in the market, the new leadership may take a less interventionist approach in managing housing prices. The central government efforts have yielded limited gains and left a warped market in its wake. The property bubble has already surfaced in third- and-fourth tier cities, and that is expected to ripple into major cities.
Leave it to the market to decide prices, observers say, and get on with building more affordable housing. That approach may be partially taking hold. Shanghai’s housing regulator has pledged to increase land supply for commercial residential housing by another 30 percent, bringing the total volume of land supply for this year to 1,000 hectares.
“We will continue to improve the systems of the property market and affordable housing to effectively curb excessively fast property price rises,” the regulator said.
And more cities are expected to follow suit.
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