Shenzhen's new 'three-in-one' housing purchase policy

china insights

After close to six months of rumours, Shenzhen’s "Three-in-One" housing purchase policy was finally implemented at the end of the first quarter of this year. Lower transaction volumes are expected in the sought-after secondary property market as it starts to cool in the remaining quarters of 2018. Meanwhile, affected by the continual price limit policy on home purchases, prices in the secondary home market will see a declining trend, with the prices of new properties going down the same road, the overall market is likely to become more volatile. Instead, the market focus will be on new buildings and less on second-hand properties.

Before the implementation of the "Three-in-One" policy, home buyers would try to get a property valuation higher than the actual transaction price to achieve higher credit ratings and reduce the amount of initial down payments. However, following this new policy, the actual transaction price, property valuation price for a mortgage application, tax assessment price for the government and the so-called “Three-Price” will no longer be calculated independently. Home buyers, especially speculators with high leverage in their home purchases, will no longer be able to obtain mortgages using evaluations that are higher than normal. 

Due to higher transaction costs with increased down payment and taxes, investors are expected to leave the market, which could result in a drop in transaction volume. Since there was approximately a half year period where people were made aware of the new policy, prospective home buyers could have made their purchases ahead of time and therefore avoided the need to prepare for additional down payments.     

In fact, this round of new policies will ensure the healthy development of the real estate market. The "Three-in-One" policy greatly enhances the fairness in taxation regulations. Its implementation will destroy the survival capability of so-called "Yin-Yang Contracts" and prevent both buyers and sellers from circumventing tax payments by reporting lower prices. It is expected that the new policy could also have significant impacts on some potential first-time home buyers, causing a 'wait-and-see' approach in the coming six months. Even more ideal would be the possibility of decreasing the down payment figures for first-time home buyers. In the long run, the new policy is unlikely to change the supply and demand relationship, as well as the long-term trends of Shenzhen’s housing market.