24 May 2019
Many lower-tier cities have been grappling with falling fiscal revenue since the central government ramped up property curbs in 2016. Photo: Bloomberg
Many lower-tier cities have been grappling with falling fiscal revenue since the central government ramped up property curbs in 2016. Photo: Bloomberg

More second-tier cities relax property curbs

Lanzhou, Hefei and Nanjing have eased property restrictions over the weekend, following similar moves by Wuhan and Zhengzhou.

The moves came ahead of the annual “Two Sessions” of the National People’s Congress and the Chinese People’s Political Consultative Conference in March.

Local governments generate nearly 40 percent of their fiscal revenues from land sales. Many lower-tier cities have been grappling with falling fiscal income since the central government ramped up property curbs in 2016. This gives them a strong incentive to boost land sales.

“Many local governments are struggling to make ends meet. And the housing market is their chamber pot to be used during an emergency,” outspoken property tycoon Ren Zhiqiang remarked.

In the Central Economic Work Conference held at the end of last year, the top policymakers said the responsibilities of the central and local governments will be clarified, and different cities will adopt different approaches as regards the housing policy.

That has paved the way for some cities to relax the housing curbs, although local governments usually wait until after the Two Sessions before they adjust their policies.]

Surprisingly, however, Wuhan and Zhengzhou have taken the initiative to change their policies to lure talents in late December. Lanzhou, Hefei and Nanjing followed suit over the weekend.

Lanzhou scrapped the restrictions on home purchases in non-core districts. The local government also allowed non-local residents to buy one flat in downtown districts without having to present social security and tax payment documents.

In the meantime, non-local residents who have bachelor or master’s degrees as well as technical workers will be allowed to buy a home in Nanjing even before they land a job.

Hefei, the capital city of Anhui province, has quietly removed the price limit for several land plots, which have been auctioned off at record prices in 2016. Local authorities have given the green light for the sale of these sites since December last year. The average price reached 16,000 yuan (US$2,465) per square meter, or 10 percent above the average housing price in the city.

All these five cities are second-tier cities and the capital of their respective provinces. They are forced to compete with other second-tier cities and have the responsibility to create more fiscal revenue for the province. Non-property sectors are not enough to fill the fiscal revenue shortfall in these regions.

In fact, income from land sales accounts for 200 percent, 155 percent, 94 percent and 84 percent of local fiscal revenue for Hefei, Nanjing, Zhengzhou and Wuhan respectively, according to data from Huachuang Securities.

The four cities all reported declines in their fiscal revenues for November last year, while their fiscal spending continued to rise, according to official data.

We can expect more second- and third-tier cities to follow suit and ease their respective property curbs in the near future. This might be good news for mainland property stocks.

On the other hand, property curbs in first-tier cities such as Beijing, Shanghai and Shenzhen are likely to continue as they are less reliant on land sales revenue.

This article appeared in the Hong Kong Economic Journal on Jan 8

Translation by Julie Zhu

[Chinese version 中文版]

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Hong Kong Economic Journal columnist

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