China Releases New Measures to Restrict Housing Sales

SHANGHAI — Trying to cool down the resurgent property market, two of China’s biggest cities announced over the weekend that they would put in place a series of restrictions and penalties on housing sales.

In the nation’s capital, the Beijing municipal government said unmarried individuals would now be allowed to purchase only one residence. The city also increased the minimum down payment for buyers of a second home and imposed a 20 percent capital gains tax on owners’ selling a residence.

In Shanghai, an identical capital gains tax was announced and took effect immediately, and city officials pledged to implement and enforce other measures aimed at stabilizing housing prices. The stiffer capital gains taxes take the place of a 1 percent to 2 percent transaction tax previously assessed on the final price of the property being sold.

The announcements came a few weeks after China’s State Council, or cabinet, said the government would take stronger action to ensure that property prices do not continue to soar, fueling what many analysts believe is a real estate bubble that could seriously damage the economy and exacerbate social tensions between the rich and the poor.

“The curbing policies are designed to optimize the allocation of housing resources,” Chen Zhiwu, the secretary general of the Beijing Real Estate Association, was quoted by the official Xinhua news agency as saying. He said the goal was to reduce speculation in the property market so that more of the existing housing supply could be taken up by end users.

Property prices in China have been soaring in last year, with housing prices up an average of 3.1 percent in 66 cities in the month of February alone, according to a government survey.

Most of the new measures had been anticipated after the State Council’s announcement in early March. The threat of tougher rules had set off a nationwide rush to sell properties before city governments detailed the specific measures they would take, as well as their starting dates.

Shanghai and other big cities had even had a surge in the number of divorce filings at marriage bureaus, with many couples openly admitting that they were filing for divorce simply to get around property rules and that they would later remarry.

In the announcements, it was clear the city governments were trying to close that loophole.

The new rules are China’s latest effort to cool real estate prices in a country where investment options can be limited and property is considered a good store of value.

Michael Pettis, who teaches finance at Peking University and is a senior associate at the Carnegie Endowment for International Peace, said China was facing challenges that many other emerging markets are struggling with: It is awash in too much cash and credit.

“China has a liquidity problem, and so it’s not clear to me changing the tax structure or fiddling around the edges addresses the real problem,” he said. “Raising interest rates would be the single biggest thing they could do. But they also need to stop credit and monetary growth.”

Although Chinese cities do not impose annual taxes on holding residential properties, the government has rolled out detailed measures virtually every year for the last decade in an effort to penalize speculation in the housing market.

The efforts have often been effective at temporarily holding down prices, but the market usually tends to roar back as investors, home owners — and even banks and property agents — identify loopholes in the restrictions, analysts say.

Because China’s booming economy is tied so closely to the property market — and because it is a major source of income for banks, who issue mortgages and local governments, who profit from land sales — any strong government measures to rein-in the sector have the potential to impact the larger economy.

In Shanghai, a city of about 22 million residents, banks are no longer allowed to offer loans to local residents buying a third home; those seeking a second mortgage are now expected to make larger down payments and to pay higher mortgage rates. Shanghai officials also said they will make it tougher for foreigners, people from other cities in China, and divorced individuals to buy homes, a clear hint that they intend to counter attempts by local residents to seek divorces in order to circumvent some restrictions.

The authorities in Beijing and Shanghai also promised to build more affordable residences. This year, Beijing said it planned to build 70,000 units of affordable housing; Shanghai said it expected to build 10,000 units.

China’s state-run media also said over the weekend that the central government is planning to introduce a unified national property registration system by the end of 2014, which could eventually make it possible to impose an annual property tax on households — yet another way the authorities expect to fight housing speculation and fend off bubbles.

“The central government is feeling the heat and not just for social reasons,” Joe Zhou, a property analyst at Societe Generale, said in a report released last week. He said a push by prime minister Li Keqiang, who took office in March, to promote urbanization as a new key growth driver “only adds to the urgency to cap property prices, as the strategy implicitly requires housing prices to be within the reach of future migrants whose purchasing power is likely to be more limited than those who have already earned their way into the urban area.”

Article source: http://www.nytimes.com/2013/04/01/business/global/china-releases-new-measures-to-restrict-housing-sales.html?partner=rss&emc=rss