Chinese Market Awaits Foreign Home Purchase RelaxationAccording to market news, the home-purchase restriction regarding foreign investors is likely to be relaxed. In 2010, under the major target of regulating excessive speculation in property market and suppressing soaring home prices, the central government launched “Guidelines on Further Regulating the Administration over Purchase of Real Estate by Foreign Individuals and Entities” (The Guidelines). According to the Guidelines, foreign individual is only allowed to purchase one self-use house and a foreign enterprise or institution with a branch set up in China can only purchase a non-residential unit for business use in the registered city.

On 6th May, Jiangmen in Guangdong took the lead to relax the restriction on foreign home-purchase, aiming to speed up the process of offloading unsold units. Although relaxing the restriction would not have immediate and drastic impact on the flow of foreign hot money and the mainland property market, it may stimulate demand for mainland luxury residence as there is great potential for luxury property market to expand in China. The price per square meter of luxury residence in Beijing has just hit a new high. The Rui Palace located in Zhaoyang district has been granted the pre-sale permission, with price per square meter surpassing RMB 200,000. The luxury property market would without doubt be further stimulated if the restriction on foreign home-purchase is relaxed in the future.

Apart from the positive market news, Beijing has just announced new mortgage rules regarding housing provident fund. Down payment for a flat is lowered to 20% with a maximum loan of RMB 1.2 million, regardless of size. For second-home purchases, down payment is reduced to 30% with a maximum loan of RMB 0.8 million. The new policy would help lower the purchasing cost and boost the rigid demand from end-users. Following series of simulative measures, home prices of major cities continue to rise. For May 2015, the average home price of 100 major cities raised 0.45% m-o-m, of which the home prices of all four first-tier cities Beijing, Shanghai, Guangzhou and Shenzhen have recorded growth. Price of primary housing in Beijing raised 0.7% m-o-m.

Looking forward, it is expected that transaction volume of first-tier cities would see major improvement due to the further relaxation of mortgage policies. The growth in home price may be in a slower pace due to the high inventory.