Six months ago, mainland authorities were trying every way to ease a property glut. Now, the primary policy goal is to stop home prices from going up too fast.
Since the National Day holiday on Oct. 1, 19 major cities have unveiled tightening measures to cool the red-hot housing market.
Does the policy U-turn in a matter of months indicate the Chinese government has no idea what it is doing?
Not really. From a certain perspective, it could be viewed as the government’s response to constantly changing economic problems.
Faced with an excess of inventory, the central government lowered the down payment ratio for first-time homebuyers from 30 percent to 20 percent to stimulate home sales.
Several local authorities also removed home purchase curbs or price caps and eased the rules for people to buy more than one property.
As a result, China’s housing market quickly turned sizzling hot.
The average housing price surged 14 percent to 12,617 yuan (US$1,878) per square meter in September, from 11,092 yuan in February.
Home prices in several first- and second-tier cities like Shenzhen, Shanghai, Xiamen and Nanjing jumped 20 to 30 percent over the past six months.
The housing boom has achieved several goals.
First, it has locked massive amounts of hot money in the property market and eased capital outflow.
Second, as housing inventory falls, property developers no longer face the risk of not having enough cash flow or credit crunch.
Also, new-home development maintains its strong momentum, which underpin economic growth and help create jobs not only in the property industry but also in all downstream sectors that support it.
Last but not least, 50 major cities garnered 1 trillion yuan revenue from land sales in the first half of this year, up 40 percent from the year before.
That would greatly reduce the local governments’ debt issue.
But after achieving its targets, the government realized that the property market has moved to another extreme and it needs to shift gears again.
More mainland investors are jumping on the bandwagon to take advantage of the surging home prices. Some even borrow from loan sharks to raise the down payment.
Amid rampant speculation in the property market, Vice Premier Zhang Gaoli convened a special meeting on Sept. 28 and warned that excessive home price gains would not only derail economic growth but also jeopardize social stability and even national security.
Apparently, top leaders sense the risk of a growing housing bubble that could spin out of control and become a disaster.
That’s why Beijing decided to reverse its policy stance.
Heeding the central government’s call, as many as 19 hot-spot cities have launched measures to curb home prices over the past two weeks.
Shenzhen, one of the nation’s most expensive cities, even raised the down payment ratio for second-home buyers to 70 percent.
Under the new rules, residents who have no household registration in the city have to pay at least five years of income tax and provident funds before they are allowed to buy a home there.
This article appeared in the Hong Kong Economic Journal on Oct. 11.
Translation by Julie Zhu
[Chinese version 中文版]
– Contact us at [email protected]