China Orders Price Controls to Cool Property Market

Wednesday, 26 Jan 2011 08:15 AM

 

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China on Wednesday unveiled fresh measures to curb property prices, including requiring unruly local governments to set price controls, but made no mention of a widely expected property tax.

City governments must set property price control targets in line with local income levels for 2011 and need to make the targets public in the first quarter, according to a state media report citing a cabinet statement.

"Local governments must shoulder responsibility for the stable and healthy development of the property market," the radio report said.

China's municipal governments have a vested interest in the booming property sector, which provides much of their tax revenues.

While the statement did not mention the long-discussed property tax, the government would step up tax collection in the property sector.

Banks would require a down payment of at least 60 percent for second-home buyers, up from 50 percent currently, according to the report.

Lenders will continue to charge "differentiated" interest rates on mortgages. As for second home buyers, the rates should be at least 110 percent of the benchmark rates.

Local residents would be barred from buying a new home if they have already owned more than two houses.

"These are the unprecedentedly harsh policies, and will definitely weigh down (property) prices," said Hua Zhongwei, an analyst with Huachuang Securities in Beijing.

Concerns about further tightening, particularly the property tax, have weighed heavily on the domestic stock market, which has fallen about 15 percent over the past ten weeks.

China has rolled out a slew of measures to target the property sector, including higher down payments and mortgage rates, but property prices have stayed stubbornly high.

The cabinet reaffirmed a pledge to build more affordable homes to slake demand from low- and middle-income households.

The country's leaders, acutely aware of public anger over unaffordable housing prices, have said they would not tolerate property inflation and speculation.

China's annual property inflation eased to 6.4 percent in December from November's 7.7 percent, though sequential momentum has remained strong, with prices rising 0.3 percent on a month-on-month basis.

"The new measures are very strict. If property sales plunge, some property developers will definitely run out of cash," said Shen Aiqing, a property analyst with GF Securities in Guangzhou.

Banks have been told to restrict lending to developers.

Still, few analysts believe the government is willing to see a crash of the sector, given the potentially high stakes.

Chinese banks poured 2.02 trillion yuan ($306.9 billion) in new loans into the property sector in 2010, accounting for a quarter of the total new yuan loans, the central bank said on Wednesday.

© 2014 Thomson/Reuters. All rights reserved.

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