Over the past month or so, home prices in a number of major Chinese cities have surged 30 percent.
The buying frenzy started right after the Lunar New Year holiday and is quickly spreading from Beijing to other cities.
The cost of an apartment in downtown Beijing is now even higher than that in Cullinan West, atop the West Rail’s Nam Cheong Station in Hong Kong. Even properties in the Beijing suburbs can fetch as much as 100,000 yuan per square meter.
A dozen Chinese cities unveiled property curbs over the weekend. Beijing raised the down payment for second homes and suspended housing loans with a maturity of 25 years or more.
I noted last month that the Beijing government had decided to cut land supply in a bid to curb population growth and avert environmental degradation.
The municipal government intends to reduce construction land supply by 30 square kilometers each year starting this year.
As China’s capital city, Beijing has always been a magnet for young people from all over China who want to pursue their dreams.
Middle class families often go to great lengths to move to Beijing in the hope of sending their children to the best schools and giving them a head start.
Consequently, despite the curbs, demand still far outstrips supply.
Nevertheless, the frenetic housing market is the last thing authorities would like to see, as runaway home prices could threaten China’s financial, economic and political stability.
The new regulations introduced in Beijing and a dozen other cities are particularly stringent, aiming to root out shady practices by homebuyers to bypass previous curbs.
For instance, only “real” first-time buyers can get a 65 percent mortgage; the rest can only get 40 percent.
To qualify as a “real” first-time buyer, one needs to have no property at the moment and also have no mortgage record.
Many couples have flocked to divorce and let one of them keep the property while the other can buy another property to enjoy preferential treatment for first-time buyers.
It’s also common for people to transfer the property ownership to family members, such as their children, and then get a new property.
These tricks won’t work under the new rules.
Corporate buyers are also asked to hold properties for at least three years before they can sell them. The move is aimed at cooling housing speculation.
However, these demand-side management measures usually intend to increase transaction costs for buyers in order to stem short-term speculation and curb investment demand. They often have short-lived effect, as long as supply-demand imbalance persists.
Yet, Chinese authorities might pull out all the stops and roll out even tougher curbs if housing prices continue to spin out of control.
This article appeared in the Hong Kong Economic Journal on Mar. 20
Translation by Julie Zhu
[Chinese version 中文版]
– Contact us at [email protected]