Interpreting recent fine-tunings in mainland China's housing policies

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In the first quarter of 2018, several non-first-tier cities in mainland China, including Lanzhou, Nanjing, Xiamen, Qingdao, Hefei, Tianjin, Zhengzhou and Xi'an, saw some loosening and fine-tuning in their housing policies. This lead to speculations of the property market control intensity and the possibility of property price reversion this year. What might be a proper way to interpret this?

Generally speaking, cities that have been affected by this round of housing policy adjustments possess at least one of the following characteristics: firstly, the income derived from land sales would have dropped significantly in the previous year, with noticeable differentiation in inventory distribution; second, given property purchase measures such as pre-sale price controls, home prices in some areas would have entered a downward trend; third, to attract high-level talents to settle down in these cities, some local governments not only exempt those in this category from any proof of residence, but would also provide them with rather sizable housing subsidies. Following the gradual completion of projects on high-priced plots of land, it is just a matter of time until a certain degree of policy fine-tuning takes place. In other words, driven by multiple pressures like property destocking, urbanisation and competition for high-level human capital, these areas highly welcome such timely refinements which also reflect indigenous and area classification policies by local governments. This can pave the way for developing a sustainable and healthy housing sector in lower-tier cities.

On the flip side, given the records of high land sales last year, the chances of housing measures easing are relatively low in first-tier cities such as Beijing. In fact, the city has a high possibility of achieving another year of good performance in 2018. According to market statistics, the transaction volume of first- and second-hand flats in four first-tier cities plunged more than 40% to 18.8 million square metres and 40 million square metres last year, respectively. This reflects the impact of the local governments’ stringent pre-sale permit issuances on new flat supplies, compacted with the results of deepening housing purchase measures. Nevertheless, the housing market in first-tier cities are expected to pick up in 2018.