China’s housing sector is waiting for the second shoe to drop. Last month China sent eight teams of central government officials to 16 provinces to check on the implementation of its propertycurbs. With the Central Government’s inspection team returning to Beijing at the beginning of August to submit reports that will be used to determine future property policy changes, speculationhas arisen that China may set new property controls as early as this month.
New price-control measures may soon hit China’s property market, which just began to show signs of a rebound following government measures to stimulate the slowing economy, said the state-runXinhua News Agency.
Yang Hongxu, Vice President of E-house China R&D Institute, said the housing market currently faces pressures of price rebounds. If no new control policy is rolled out, marketexpectations for home price hikes will be reinforced in the second half of 2012.
Inspectors’ mission
The inspection comes as home prices are rebounding.
In June, more major Chinese cities saw home price rise from May, according to government statistics. It was also the first time since September 2011 that the number of cities with priceincreases exceeded that of cities experiencing price drops.
In July, the average new home prices in 100 major cities rose for the second month by 0.33 percent month on month, and the price rise was 0.05 percent in June, according to data from theChina Index Academy.
A report by SouFun, a real estate website, said in July new home prices showed their biggest gain since June 2011.
First-tier cities, such as Beijing and Guangzhou, have seen a much faster recovery in house turnover. During the first three weeks of July, turnover in first-tier cities grew 29 percentcompared to last year to hit 1.8 million square meters, while thirdtier cities grew only 1 percent, according to Centaline Group, a Hong Kong-based property agency.
Although the warming of the realty sector was said to be the result of bigger discounts and interest rate cuts this year, the sales and price surges in some cities have caused alarm in theCentral Government which fears its recent macroeconomic easing policies may have sent the wrong message to the market.
The eight teams were tasked with tapering property speculation and evaluating the effects of the curbing measures that have been introduced so far, the Central Government said.
This is the biggest inspection team sent by the Central Government in recent years, according to China Central Television CCTV, the national broadcaster. The participation of high-rankofficials from key government departments added to the inspection’s leverage. The inspection team to Fujian and Zhejiang provinces was led by Mu Hong, Vice Chairman of the National Developmentand Reform Commission, the country’s top economic planner. The team to Sichuan Province and Chongqing Municipality was led by Wang Bao’an, Vice Minister of Finance.
The government envoy visited local housing projects and talked to government officials, developers, home buyers and housing agents.
In his inspection in Fuzhou, Mu asked a staff member in a house registration department how to define the second home buyer. He also urged Fuzhou Mayor Yang Yimin to release the housetransaction data in July as soon as possible.
Although the State Council’s inspection teams provided positive feedback on the implementation of housing control policies in the 16 provinces and municipalities they visited, Hunan, Hubeiand Hebei provinces were asked to promptly impose “corrective measures” as local home prices look likely to rebound.
A local and central game
While Mu was inspecting Zhejiang, the province’s third-tier city Yiwu was reported by China Securities Journal to have cancelled the home purchase limit from the beginning of this year.
“I did read relevant media reports and will discuss it with my team,” Mu told CCTV.
Many local governments have tried to boost the housing market by not strictly implementing property control policies, such as providing incentives to home buyers and lifting the publichousing fund and loan caps.
According to Yu Fenghui, a senior financial commentator, since tightening curbs on the property sector in 2010, 33 Chinese cities have issued easing policies going against the CentralGovernment’s property restriction policies.
On February 9, 2012, Wuhu in east China’s Anhui Province released a housing policy, offering subsidies to first-home buy- ers. In October 2011, Foshan in southern Guangdong Province said itwould allow residents to buy a second home.
In May housing regulators in Yangzhou in east China’s Jiangsu Province announced the beginning of an incentive policy for new home buyers.
“For years, China’s housing sector has been a game between local and central governments,” said Yang, Mayor of Fuzhou.
The housing boom in the past decade has caused local governments to rely heavily on land sales. The sale of land now accounts for more than 60 percent of local governments’total revenue,according to the 2011 Blue Book of Real Estate released by the Chinese Academy of Social Sciences.
“The local governments have become the biggest beneficiary and driving force of housing price increase,” said Ma Guangyuan, a senior financial commentator.
With home prices soaring beyond the reach of average wage earners, the Central Government implemented tightening measures in 2010 to bring home prices down, including restricted homepurchases while requiring higher down payments and introducing property taxes.
Last year more Chinese cities witnessed much higher unsuccessful land auctions than the previous year.
“Failed land auction has surely added pressure to local governments’ fiscal conditions,”said Song Huiyong, an analyst with Centaline.
When Mu asked why Fuzhou has not released its latest property market data, Yang said the information would cause more harm than good.
“The outlook of China’s realty sector has become even more complicated than before in that the game playing between local governments and the Central Government is getting more and moreintense,” Yang said.
The Central Government pledged to keep the curb policies firmly in place, while local governments expected property market easing in hopes of improving their fiscal situation and boostingweaker local economies, according to Yang.
“Sending the inspection team demonstrated the Central Government’s determination to urge the local governments to implement tightening policies,” Yang added.
The central authorities have reiterated their firm stance on property market regulation many times this year. Premier Wen Jiabao said earlier in July the government must make unswervingefforts to ensure house prices return to reasonable levels and block a price rebound that would undermine the effects of previous efforts.
In the notice jointly released by the Ministry of Land Resources and the Ministry of Housing and Urban-Rural Development in July, the Central Government showed its determination to maintain afirm grip of the real estate market and consolidate previous achievements in bringing down home prices to prevent a rebound.
“Local authorities must strictly implement property control policies,” according to the notice. “Those that have loosened up controls must set straight the policies.”
Chen Guoqiang, Vice Chairman of the China Real Estate Society, said it is necessary for the Central Government to urge local governments to be fully responsible for price control efforts andensure the implementation of previous policies.
Room for control
New restrictions on China’s real estate market may be on the way as soon as this month, reported China Securities Journal.
“If the housing market isn’t cooled, new tightening measures may be released soon,”said Yang.
According to Yang, the new policies could include raising the transaction tax on existing homes, expanding a property tax trial, raising the transaction tax on second-hand homes and launchingaccountability measures against local governments.
The new measures may be implemented in August to avert further increases in property prices as the market enters the traditionally high price season of September and October, said ZhangDawei, Director of the Market Research Department with Beijing Centaline Property Co. Ltd.
Details and timing of the new policies will largely depend on the report produced by a government inspection team, which just concluded a nationwide check on the implementation of localproperty rules, said China Securities Journal.
Many economists also called for further improvement in the taxation mechanism to regulate the market, which will not only cover transactions but also possession of real estate.
Chinese policy makers have clearly stated that property tax trials will be expanded, according to Jia Kang, Director of the Research Institute for Fiscal Science under the Ministry ofFinance.
China introduced property tax trials in the cities of Shanghai and Chongqing at the beginning of last year as part of efforts to curb runaway home prices.
