Property

325 Cooling Measures

The uneven distribution of supply and demand in the property market across different cities in China has been a growing problem, with signs of bubble formation in some of the cities, especially in Tier-one cities, and excessive inventory in the others. In response to that, local governments are launching differentiated policies to combat the issue. For example, the Hunan government has been encouraging farmers, or people living in rural areas, to move into the city. Some states may even offer financial incentives for property purchases. Nearly half of the provinces in the country have been implementing a range policies to help destocking the local real estate market. Yet, the government of popular cities are still seen launching cooling measures.

The Shanghai city government announced its “Comments on how to improve the structure of the housing market and to sustain healthy growth in the real estate market” on 25th March, with policies being implemented on the same day. Some of the policies that would affect potential buyers include, firstly, the lowering of the LTD (loan to deposit) ratio for specific types of purchase. Any purchase of a second common residential property must not have a LTD ratio of more than 50%, while LTD is limited to 30% when the second home purchased is not a common unit. Secondly, non-permanent residents must now have been paying personal income tax or social insurance in Shanghai for at least 5 years to be eligible to buy a home in the city.

Shenzhen’s government issued its version of real estate cooling measures later on the same day. Under the new policy, the minimum term of personal income tax or social insurance payment in the city for non-permanent residents was risen from 1 year to 3 years, while maximum LTD ratio for the purchase of second homes after the repayment of the first mortgage has been lowered from 70% to 60%.

Since the implementation of the cooling measures in the two Tier-one cities, both transaction volume and prices have fallen in the respective property market, with second-hand market suffering even more. Yet, the recently announced policies are generally regarded as much gentler than the other cooling measures issued in the past 10 years. It has been pointed out that only 10% of the Shenzhen’s population is affected by the tightening of the city’s social insurance requirement. Analysts warn that the market’s recent down turn may have been caused by factors other than the change in policy.