In China, property market and economic growth are inextricably linked and home price is always in the spotlights. Despite repeated interventions from the Central Government, in both administrative and open-market ways, home prices continue to soar across the country in recent years. In the latest round of macro-controls on the property market – five directives at municipal levels, apart from enhancing all existing measures such as purchase and mortgage restrictions, price controls and capital gains tax, the central Government this time also includes home price growth as a key gauge for assessing local governments’ performance.
As the capital of China, Beijing has the toughest cooling measures, and it draws the strongest reactions from the market too. Starting from May, all residential properties in the city, whether completed or not, have to seek approvals from the local government before going on sales, to ensure their proposed prices are appropriate. The guidelines of the appropriate price, according to Yang Bin, director of the Beijing Municipal Commission of Housing and Urban-Rural Development, are first, not notably higher than earlier selling price of the same project, and second, in line with other comparable projects nearby.
As a result, some luxury projects’ developers in an attempt to get pre-sale consent, have divided home price into two parts – the price for undecorated flats which is set in accordance with the Government’s guidelines, along with a fixed decoration cost that is bundled with the flats. For instance, the official listed price of a new project launched lately in Fangshan, is RMB 16,000 per square meter, 20% below the market average of RMB 20,000 per square meter nearby. However, homebuyers in the project are asked to pay a fixed decoration fee in addition to the property’s listed price, making the actual price significantly higher than the price the developers register with the Government.
It may be a dilemma for the Government. The price caps will prove fruitless unless the Government close the loophole. On the other hand, it is also difficult to dissuade developers from trying to bypass new measures. Should the Government choose to scrap the measures, new home prices will start rising again immediately.