Regulations curb growth of housing prices in smaller Chinese cities

By Huang Ge and Zhang Hongpei Source:Global Times Published: 2017/4/12 17:53:39

Second-tier stability

In March, more than 30 second- and third-tier cities in China issued regulations for their heated housing markets. Experts said that the efforts demonstrate the government's determination to curtail speculative buying and slow the rapid growth in real estate prices. Thanks to judicious regulations, cities such as Hangzhou, capital of East China's Zhejiang Province and Southwest China's Chongqing have managed to maintain vibrant housing markets, even though price growth has leveled off and the number of nonlocal investors has declined. Still, local residents wonder whether the regulations will continue to be effective in the long term.

A residential housing project gets built in January in Hangzhou, capital of East China's Zhejiang Province. Photo: CFP

A recent wave of new home-buying restrictions across the country has helped cool many overheated local property markets in China's second- and third-tier cities, demonstrating the government's determination to curb speculative buying and slow the rapid ascent of real estate prices.

More than 30 second- and third-tier cities rolled out home-buying restrictions in March. Some cities, such as Hangzhou, capital of East China's Zhejiang Province and Xiamen, East China's Fujian Province, issued more than one set of regulations in the month.

For example, Hangzhou prohibited residents with local household registration from owning more than two homes in the city, according to an announcement by the Hangzhou Housing Security and Management Bureau on March 2.

It also required home-buyers without local household registration from buying a home unless they first prove that they had paid personal income taxes and social security fees for at least 24 straight months.

On March 28, Hangzhou city government further tightened home-purchasing regulations by defining second-home buyers based on the number of apartments listed under their names, as well as by their mortgage records.

"Housing prices in Hangzhou started surging after the G20 summit was held in the city in September [2016]," said Angie Wang, a local resident.

According to what Wang has seen, the average home price in Hangzhou in March grew 2 percent month-on-month to more than 20,000 yuan ($2,897) per square meter.

The average home price in Hangzhou stood at about 18,000 yuan per square meters in September 2016, according to a report by the E-house China R&D Institute.

"Many of my friends are seeking to buy apartments, despite the housing curbs and rising prices," she told the Global Times on Tuesday.

Tighter regulations

Houses from about 30 real estate projects in Hangzhou will hit the market in April, media reports said.

Since the beginning of 2017, Hangzhou real estate market has been hotter than the markets in other second-tier cities, said Liu Yuan, senior research manager at Centaline.

On March 28, Hangzhou announced a new property market regulation that many people called the strictest in the city's history, Liu told the Global Times on Tuesday. The situation shows that previous regulations had failed to control the surge in local property prices that started in November 2016.

"Hangzhou is an agreeable city to live and invest in, so the potential demand is growing," said Yan Yuejin, research director at the Shanghai-based E-house China R&D Institute. "Meanwhile, it is undeniable that some speculative factors exist."

Yan predicted that the new regulations will cause the city's home prices to level off for a while.

The ongoing efforts to rein in runaway prices show that the city's real estate market remains under great pressure and more regulations are likely to be issued in the future, experts said.

Hot markets

The housing market of Nantong, East China's Jiangsu Province, a city about 250 kilometers northeast of Hangzhou, has remained hot even though local authorities increased the minimum down payment requirement from 30 percent to 40 percent in March.

Home prices in Nantong increased by 10 percent from January to March, a local resident ­surnamed Su told the Global Times on Tuesday, noting that crowds have been flocking to the Nantong Property Trade Center in recent weeks.

Many of the buyers come from other parts of China, especially Shanghai and Beijing, seeking to capitalize on Nantong's close proximity to Shanghai, Su said. Nantong is about 130 kilometers away from Shanghai.

Local residents have not been much affected by the outsider-driven surge in home prices because most locals already own a home.

The housing market in Southwest China's Chongqing has also been a favorite for investors from other parts of the country.

In late October 2016, the average home price in Chongqing's northern Yubei district was about 8,000 yuan per square meter, said Laura Cai, a 30-something white-collar worker in Chongqing. The price has since grown to 12,000 yuan per square meter.

"The average home price in Chongqing is lower than in provinces in other parts of China, so there is still a lot of room for growth," Cai told the Global Time on Tuesday.

Local home prices were expected to rise due to the establishment of a free trade area in Chongqing on March 15, Yan said.

He noted that prospective buyers, especially from other parts of China, are likely to turn to Chongqing because its home-buying restrictions are looser than elsewhere in the country. 

In January, Chongqing announced that buyers without a local business, a local job or local residency must pay a 0.5 percent property tax on homes they buy in the city.

A nationwide property tax has not been implemented, though ­Chongqing and Shanghai have been piloting their own local property taxes since 2011.

Impact to be observed

The growth of new home prices in second-tier cities decelerated in February, declining by 0.4 percentage point compared with January, according to data the National Bureau of Statistics (NBS) released on March 18.

The average home price in some provincial capitals in China's western and central provinces, such as Chengdu, capital of Southwest China's Sichuan Province, and Changsha, capital of Central China's Hunan Province, ranged between 8,000 yuan and 10,000 yuan per square meter in February, according to a report by the E-house China R&D Institute.

The average housing price in Xi'an, capital of Northwest China's Shaanxi Province, was about 7,971 yuan per square meter in February, the report said. In Xining, capital of Northwest China's Qinghai Province, the average price stood at 6,092 yuan per square meter in the same month.

Yan predicted a slight increase in second-tier city home prices in the second half of this year, especially in capitals such as Hangzhou, Nanjing and Chengdu.

"Home prices are closely related to potential demand, which remains strong at the moment," Liu said, noting that it will take some time to observe what impact the latest round of home-buying restrictions will have on demand.

Local efforts will play a leading role in preventing surging home price, Liu said. 

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