A number of second-tier cities in China unveiled home-purchase restriction measures recently. Following the policy moves, the housing market is likely to go through a correction from now on, and the ripple effects might be felt in first-tier cities as well.
Xiamen’s bureau of land resources and real estate management announced on Aug. 31 that local registered residents are prohibited from purchasing a third home with floor space less than 144 square meters, and that non-locals are banned from buying a second home.
The new rule will also apply to residents who haven’t paid individual income tax to the city for 12 straight months within the past two years, as well as non-local residents who can’t provide proof of social security payments.
In the meantime, the central Chinese city of Wuhan has raised the minimum down-payment on second homes. The down-payment has been increased to 40 percent from 30 percent for those who already own a house but are buying a second one in downtown districts, according to a circular from local authorities.
And those who have two or more homes but still owe a mortgage will also need to pay 40 percent down-payment at least. Local banks will continue to stop lending to those who have two or more homes but still owe two mortgages, the statement said. The new measure took effect on Sept. 1
Several other Chinese cities, including Hefei, Nanjing and Suzhou, have also unveiled measures to rein in red-hot home prices. For example, Hefei announced on Aug. 9 that local banks will stop lending to those who have two or more homes but still owe a mortgage.
Nanjing has raised the minimum down-payment ratio to 35 percent for second-home buyers who already paid back mortgage. And those who have two or more homes but still owe a mortgage need to pay down-payment of 50 percent at least.
Suzhou has resumed home purchase restrictions for non-local residents who intend to buy a second home. Local authorities will raise the minimum down-payment to 50 percent from 40 percent. And those who have two or more homes but still owe a mortgage will not be able to get any mortgage loans.
Following all these measures, China’s housing market is likely to suffer some correction from this month until the first half of next year.
Both housing sales volume and prices will be hit if the market starts to reverse the uptrend, and property investment may suffer huge volatility. Some mainland cities might face a tough time again, affecting the overall market sentiment.
As local authorities may unveil more measures in a bid to reduce leverage in the property market, the sector could go through a shake-up again.
This article appeared in the Hong Kong Economic Journal on Sept. 5.
Translation by Julie Zhu
[Chinese version 中文版]
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