Commercial Housing
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New housing restrictions announced
Eight local governments follow Beijing's example to cool the overheated market In the past four days, local governments in nine cities have announced new restrictions on property purchases, designed to dampen speculative buying and curb soaring prices. At the weekend, Tianjin, Suzhou, Zhengzhou, Chengdu, Jinan, Wuxi, Hefei and Wuhan followed an announcement made in Beijing late Friday night. They introduced measures to cool the residential property market, such as raising down payment requirements for second homes or banning the purchase of second and third homes. In the past few months, average prices of commercial residential property in the cities have registered double-digit, year-on-year rises. In August, Zhengzhou, in Henan province, saw the country's fastest monthly surge in the prices of new commercial residences and pre-owned homes. According to the National Bureau of Statistics, the average prices of new homes in 70 major cities rose 9.2 percent year-on-year in August, from 7.9 percent in July. More than 90 percent of the cities saw prices rise on a monthly basis. Industry experts said cities, including Fuzhou, Dongguan, Zhuhai, Shijiazhuang and Qingdao, where home prices have seen runaway growth, are also likely to tighten rules for home purchases. Yan Yuejin, research director of a think tank at the E-House China R&D Institute, a real estate research agency, said the new policies will restrain overheating home prices in some popular areas, and housing transactions in some cities are likely to fall in the second quarter of next year. However, home prices are not likely to see substantial declines because of the shrinking property inventory and land supply, plus a swelling urban population, Yan said. On Monday, as part of its efforts to curb speculation, the Ministry of Housing and Urban-Rural Development issued a list of 45 housing developers and agents accused of hoarding, price rigging and other malpractices. The Beijing government on Friday announced that down payments for first-time homebuyers should be no less than 35 percent, up from the previous level of 30 percent, while those for purchases of second homes should be no less than 50 percent. The land supply for so-called self-use houses, which are sold to qualified families at a price ceiling imposed by the government, will be increased, the government said. "These measures (in Beijing) will affect potential buyers who are keen to buy a better house by enhancing the investment threshold and utilizing financial leverage," said Guo Yi, marketing director at the Yahao Real Estate Selling and Consulting Solution Agency in Beijing. Before the new regulations, the down payment requirement for pre-owned houses in Beijing had reached 40 to 60 percent of the total price, Guo said, adding that the proportion may rise to 50 to 70 percent under the new policy, which would greatly reduce demand for pre-owned housing. fanfeifei@chinadaily.com.cn Fan Hui, 32, a private business owner, bought an 80-square-meter two-bedroom apartment in Chaoyang district of Beijing in June. "I am very lucky because the price has risen by more than 1 million yuan ($150,000) in the three months since I bought it," Fan said.
Double whammy
Li Yan, a 32-year-old company executive based in Beijing, had a not-so-pleasant National Day holiday last week. The new housing policy, rolled out on Sept 30, shattered her dream of owning an apartment in the city's Haidian district, home to well-known educational institutions. Li, mother of a five-year-old son, hails from Anhui province in East China. She had plans to buy a two-bedroom flat close to a good primary school in Haidian, and ask her parents to move into her current home, a one-bedroom flat in Chaoyang district. She was able to somehow save enough money for the 30 percent down payment in late September. But, according to the new housing policy, which was announced just ahead of the holiday, she has to make a 50 percent down payment. This, despite having paid off all mortgages on her first home, which required only a 30 percent down payment earlier. "I know the new policy is mainly aimed at curbing speculative home purchases, but that's also bad news for homebuyers like us who need a home for children's education or for improved living standards," said Li. From Sept 30 to Oct 6, 19 cities introduced similar measures, mostly higher down payments for a second home, but some prohibited the purchase of second and third homes. For instance, Beijing increased the down payment for first-time homebuyers from 30 percent to 35 percent; that for second homes rose from 30 percent to a minimum 50 percent. For a second home larger than 140 square meters, the down payment is now 70 percent. "I expect more cities will roll out similar policies, especially those satellite cities close to metropolitan cities and those that may face risks of a new round of home price hikes," said Zhang Dawei, an analyst with Centaline Property. The retrictive moves follow an extraordinary upswing in home prices this year that left many homebuyers fuming with astonishment, anxiety and anger. Home prices rose in 64 of 70 cities tracked by the Bureau of Statistics in August, up from 51 the previous month. Shanghai home prices surged a record 4.4 percent month-on-month and 31 percent year-on-year; Beijing's levels climbed 31 percent month-on-month and 24 percent year-on-year. When property major Vanke's Shanghai branch started an online sale of 442 new houses in mid-September, 1,760 prospective buyers bid as soon as the event started at 10 am, almost causing the server to crash. Minutes later, all the 442 units were snapped up. The frenzy also spread to provincial capitals. The volume of transactions for apartments in Hangzhou, for instance, rose more than 180 percent week-on-week between Sept 12 and Sept 18 as investors flocked to the city to buy second homes before the new home purchase limits for non-resident buyers took effect. "Buying a house is like a fierce battle fought over and over again," said Shi Rujia, an employee of a State-owned enterprise in Nanjing. Twice in a day, she failed to qualify as a buyer in the draw of lots. She is now waiting for other opportunities. Soaring home prices and rise in transactions, which mark the current property rush, have contributed to a surge in housing mortgages and a fall in construction land. Central bank data showed that Chinese banks in August issued 529 billion yuan ($79 billion) in household medium- and long-term loans, mortgages accounting for 55.7 percent of the total. In the first eight months of the year, these loans rose 90.4 percent year-on-year to 3.63 trillion yuan. One difficulty in reining in the home-buying frenzy is the larger leverage residents used through commercial banks with a growing appetite for mortgage loans, JPMorgan Chase & Co analysts led by Zhu Haibin wrote in a research note. Buyers in second- and third-tier cities are able to obtain the same mortgage discounts as in the largest hubs, normally between 10 percent and 15 percent, a sign that a liquidity surge has backed up the rally, said Jeffrey Gao, a Hong Kong-based property analyst at Nomura Holdings Inc. In contrast, enterprises received fewer loans from banks, although China's current easy monetary policy－it is marked by low interest rates and reserve requirements－was meant to help them. "The rising home prices are now based on household loans, which is risky," said Yao Zhizhong, a global economic and political researcher with the Chinese Academy of Social Sciences. A natural, and sometimes artificial, shortage of land for housing development could be another reason for the home price hikes, particularly in big cities, experts said. For instance, Beijing plans to supply only 4,100 hectares of construction land this year, down from 4,600 hectares in 2015 and 5,150 hectares in 2014. Prices of recently auctioned plots in many cities were higher than those of nearby existing homes, meaning that home prices in these areas are set to increase. High land and home prices have created a chicken-and-egg conundrum. In response, local government unveiled new housing policies, and revved up their efforts to introduce new land parcels into the market. Despite growing concern about a potential bubble ballooning in the real estate sector, an increasing number of investors are jumping on the housing bandwagon because they don't have many alternatives to maintain or increase the value of their assets, industry observers said. For instance, the interest rate on one-year deposits is 1.75 percent. The Shanghai Composite Index, after a slump last year, has been moving around 3,000 points with trading remaining muted last month. Zhang Di and his wife, a young couple living in Tianjin, recently used idle funds to invest in the housing market because their family business in the chemical industry was treading on thin ice. "My father has been talking about closing the factory, after a lifetime of efforts. What can I do? Investing in property seems to be the only way out," Zhang said on phone. To stabilize the home market, China needs to quicken its economic restructuring and develop new growth engines that can generate returns higher than that of the property sector, said housing market analyst Liu Ce.Li Yan, a 32-year-old company executive based in Beijing, had a not-so-pleasant National Day holiday last week. The new housing policy, rolled out on Sept 30, shattered her dream of owning an apartment in the city's Haidian district, home to well-known educational institutions. Li, mother of a five-year-old son, hails from Anhui province in East China. She had plans to buy a two-bedroom flat close to a good primary school in Haidian, and ask her parents to move into her current home, a one-bedroom flat in Chaoyang district. She was able to somehow save enough money for the 30 percent down payment in late September. But, according to the new housing policy, which was announced just ahead of the holiday, she has to make a 50 percent down payment. This, despite having paid off all mortgages on her first home, which required only a 30 percent down payment earlier. "I know the new policy is mainly aimed at curbing speculative home purchases, but that's also bad news for homebuyers like us who need a home for children's education or for improved living standards," said Li. From Sept 30 to Oct 6, 19 cities introduced similar measures, mostly higher down payments for a second home, but some prohibited the purchase of second and third homes. For instance, Beijing increased the down payment for first-time homebuyers from 30 percent to 35 percent; that for second homes rose from 30 percent to a minimum 50 percent. For a second home larger than 140 square meters, the down payment is now 70 percent. "I expect more cities will roll out similar policies, especially those satellite cities close to metropolitan cities and those that may face risks of a new round of home price hikes," said Zhang Dawei, an analyst with Centaline Property. The retrictive moves follow an extraordinary upswing in home prices this year that left many homebuyers fuming with astonishment, anxiety and anger. Home prices rose in 64 of 70 cities tracked by the Bureau of Statistics in August, up from 51 the previous month. Shanghai home prices surged a record 4.4 percent month-on-month and 31 percent year-on-year; Beijing's levels climbed 31 percent month-on-month and 24 percent year-on-year. When property major Vanke's Shanghai branch started an online sale of 442 new houses in mid-September, 1,760 prospective buyers bid as soon as the event started at 10 am, almost causing the server to crash. Minutes later, all the 442 units were snapped up. The frenzy also spread to provincial capitals. The volume of transactions for apartments in Hangzhou, for instance, rose more than 180 percent week-on-week between Sept 12 and Sept 18 as investors flocked to the city to buy second homes before the new home purchase limits for non-resident buyers took effect. "Buying a house is like a fierce battle fought over and over again," said Shi Rujia, an employee of a State-owned enterprise in Nanjing. Twice in a day, she failed to qualify as a buyer in the draw of lots. She is now waiting for other opportunities. Soaring home prices and rise in transactions, which mark the current property rush, have contributed to a surge in housing mortgages and a fall in construction land. Central bank data showed that Chinese banks in August issued 529 billion yuan ($79 billion) in household medium- and long-term loans, mortgages accounting for 55.7 percent of the total. In the first eight months of the year, these loans rose 90.4 percent year-on-year to 3.63 trillion yuan. One difficulty in reining in the home-buying frenzy is the larger leverage residents used through commercial banks with a growing appetite for mortgage loans, JPMorgan Chase & Co analysts led by Zhu Haibin wrote in a research note. Buyers in second- and third-tier cities are able to obtain the same mortgage discounts as in the largest hubs, normally between 10 percent and 15 percent, a sign that a liquidity surge has backed up the rally, said Jeffrey Gao, a Hong Kong-based property analyst at Nomura Holdings Inc. In contrast, enterprises received fewer loans from banks, although China's current easy monetary policy－it is marked by low interest rates and reserve requirements－was meant to help them. "The rising home prices are now based on household loans, which is risky," said Yao Zhizhong, a global economic and political researcher with the Chinese Academy of Social Sciences. A natural, and sometimes artificial, shortage of land for housing development could be another reason for the home price hikes, particularly in big cities, experts said. For instance, Beijing plans to supply only 4,100 hectares of construction land this year, down from 4,600 hectares in 2015 and 5,150 hectares in 2014. Prices of recently auctioned plots in many cities were higher than those of nearby existing homes, meaning that home prices in these areas are set to increase. High land and home prices have created a chicken-and-egg conundrum. In response, local government unveiled new housing policies, and revved up their efforts to introduce new land parcels into the market. Despite growing concern about a potential bubble ballooning in the real estate sector, an increasing number of investors are jumping on the housing bandwagon because they don't have many alternatives to maintain or increase the value of their assets, industry observers said. For instance, the interest rate on one-year deposits is 1.75 percent. The Shanghai Composite Index, after a slump last year, has been moving around 3,000 points with trading remaining muted last month. Zhang Di and his wife, a young couple living in Tianjin, recently used idle funds to invest in the housing market because their family business in the chemical industry was treading on thin ice. "My father has been talking about closing the factory, after a lifetime of efforts. What can I do? Investing in property seems to be the only way out," Zhang said on phone. To stabilize the home market, China needs to quicken its economic restructuring and develop new growth engines that can generate returns higher than that of the property sector, said housing market analyst Liu Ce.
Keynes and Hayek in the property market
Real-estate prices in China's top cities are spiking, generating contradictory predictions of either a bursting bubble or a coming economic turnaround. What's really going on in China's property markets? The National Bureau of Statistics revealed recently that 10 of the 70 large and medium-sized cities surveyed had recorded annual price increases of more than 20 percent for newly built commercial housing. In the first-tier cities of Shanghai and Shenzhen, those gains were even higher: above 37 percent. In the second-tier cities of Xiamen and Hefei, they exceeded 40 percent. In 42 of the cities surveyed－those with industrial overcapacity and excessive property inventories－price increases amounted to less than 5 percent, with eight cities recording falling or stagnant property prices. This pattern of divergence creates a dilemma for Chinese policymakers and investors, who now must weigh carefully the insights of two economic giants: John Maynard Keynes and Friedrich Hayek. At a time of slowing economic growth, some are advocating more Keynesian macro-stabilization measures, much like those China used to sustain growth after the global financial crisis of 2008. But in many areas, particularly in the northeast, central, and western parts of the country, the slowdown cannot be resolved through more stimulus. In fact, stimulus in those regions would largely flow out, along with the labor and capital that is already being propelled toward coastal areas, which boast more advanced technology, higher rates of innovation, superior infrastructure and a more market-friendly business environment. What slower-growth regions need, therefore, is time to carry out supply-side structural reforms, including cutting inventories, reducing overcapacity and writing off the bad debts of local governments and State-owned enterprises. The regions with surging property prices tend to be the ones that are drawing labor and capital with high growth and superior job opportunities. A study by China Securities International showed that, in 2000-10, cities in eastern China received 82.4 percent of total migrant inflows. By 2010, the migrant population in Beijing, Shanghai and Tianjin had more than doubled, to 34.5 percent, 37.9 percent and 21 percent. In an attempt to manage the growth of these cities, which faced a huge shortage of land, housing inventories and urban public infrastructure, the governments imposed restrictions on both demand for and supply of housing. But, as the spike in housing prices in these cities shows, their efforts didn't work. Policymakers had forgotten about Hayek. China's policymakers inadvertently created bottlenecks in local land supply. Residential land transactions in first- and second-tier Chinese cities remain thin and heavily influenced by urban planning policies, despite the depth and sophistication of residential property markets. Fortunately, there is scope for China's urban planners to relax restrictions on the supply of land and on the floor area ratio (the ratio of gross floor area to the size of the lot on which the building stands). According to a China International Capital Corp study, the urban built-up area in Shanghai is only 16 percent, compared to 44 percent in Tokyo and 60 percent in New York City. Within that area, only 36 percent is used for residential functions in Shanghai, compared to 60 percent in Tokyo and 44 percent in New York City. In other words, the available residential land for sale in Shanghai is considerably smaller than that available in New York City or even Tokyo, which is a major reason for surging property prices in these cities. In fact, if the supply of land and usable floor area is not increased, more spending on local public infrastructure will cause prices of existing space to rise even higher. If the government ignores market price signals, mismatches between supply and demand could build up, undermining growth in dynamic regions, while leaving low-growth regions weighed down by excess capacity and bad assets. The good news is that there is still considerable room for policy maneuver. The question now is whether the Chinese authorities will recognize and respond effectively to market signals. Andrew Sheng is a distinguished fellow of the Asia Global Institute at the University of Hong Kong and a member of the UNEP Advisory Council on Sustainable Finance, and Xiao Geng, director of the IFF Institute, is a professor at the University of Hong Kong and a fellow at its Asia Global Institute. Project Syndicate
Knowledge Graph
Examples
1 The salariat class are longing for a rational return in the commercial housing price.
2 The advance sale of commercial housing system in our country only has a little law to work.
3 This undoubtedly weakened its role in curbing commercial housing prices.