New Plan, New Game
Mainland China is making efforts to clamp down on property prices
| Text : Alex Frew MacMillan | Photo : www.thinkstockphotos.com |
The People’s Republic of China means it this time. No more throwing money at any apartment, no more fights at real-estate showrooms, and no more snapping up flats in five cities and flipping them.
China is rewriting the rules on its real-estate policies- and it’s getting serious. Market watchers expect a drastic decline in sales volumes in the mainland property market over the next few months, and they say that while everyone gets used to the new rules, they say they wouldn’t be surprised to see decent-sized declines in prices, maybe as much as 20 to 30 percent.
In mid-April, the central government brought out its toughest policies to date, raising interest on second homes to 1.1 times the benchmark rate from a discount, and stepping up downpayments on second homes to 50 percent of the purchase price, up from 40 percent. It also pushed the downpayment on first homes that are bigger than 970 square feet to 30 percent, up from 20 percent.
It seems like the mainland government announces some new property policy every two or three months. And the changes seem small. But the mortgage policy in particular has hit would-be buyers where it hurts most - in the wallet. China is basically trying to cut off credit for anyone who isn’t a first-time home buyer.
“This set of policies that just came out in April, you might even think of it as the one-house policy,” Robert Fong, the director of international product and business development at the research house China Real Estate Information Corporation, told an investment conference organised by the Australian investment bank Macquarie shortly after the new measures were announced. Fong dubbed these measures “the most comprehensive set of policies ever announced” to curb the market.
Hong Kong and Taiwanese buyers are allowed to buy two properties on the mainland. But it’s getting to the point where they can forget about financing those second and third homes. Local buyers will find it harder and harder to borrow too.
It’s not surprising. Home prices have surged a ridiculous amount in the biggest cities. Shanghai residential property prices were up a staggering 87 percent last year, according to a report put together by Knight Frank and the Chinese brokerage Holdways. Shenzhen, up 66 percent, and Beijing, up 63 percent, weren’t far behind. In those cities, the property market is now as crazy as China’s stock markets, prone to virtually double in a year and presumably equally likely to drop by half the next.
So the communists are taking a stick to the capital markets, a scene we’ve seen before. “Up to the middle of 2008, there was a general bias towards tightening and they were still very, very afraid of the inflation monster getting out of the cage,” Fong said. “A lot of things happening now would have happened earlier if the global financial crisis hadn’t happened.”
The central government, in other words, is trying to control a bucking dragon. A couple of years ago, they thought they had the monster flying along calmly until it suddenly crashed towards ground when the weight of the world’s economic woes brought it down.
They let the beast loose again, and for good measure fed it billions of yuan to get it back in the air. Now they want to take the fire out of its nostrils and tame the reptile once again.
There’s a lot at stake. Owning a mobile phone, a car and a home is the modern aim of China’s emerging middle class, replacing the 1950s wish list of a watch, a bicycle and a sewing machine. Threaten those desires, and you’ll have 1.3 billion pretty frustrated citizens on your hands. The most violent clashes between the proletariat and the police in China always seem to involve property rights.
Revolution starts at home. Faced with that kind of threat, you can bet the mainland government isn’t going to stop rolling out new cooling policies until it feels a very distinct chill in the air.
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