How Shanghai’s new real estate policies have affected potential home buyers?

Source:Global Times Published: 2016-4-12 17:58:01

After Shanghai property prices jumped 20.6 percent in February on the previous year, the Shanghai government introduced a slew of measures on March 25 to cool the overheated property market. The new measures were designed to tighten financial requirements for second home purchasers and also raise the eligibility threshold for residents without Shanghai hukou (household registration) buying properties.

Under the new policies, the mortgage deposit level for second-home buyers has been raised to a minimum 50 percent. As well, families with no Shanghai hukou, will have to have made contributions to the local welfare and pension system for at least five years in a row, instead of just two years.

One week after the new policies were introduced, home sales in Shanghai tumbled sharply. According to UWIN, a realty information provider, the total floor area sold in Shanghai dropped 60 percent from the previous week to around 283,600 square meters, while the average transaction price of houses in the same period was also down by 3.42 percent to 32,916 yuan ($5,090) per square meters.

New property purchasing regulations have caused downturn in Shanghai's real estate market. Photo: IC

Though the new rules seemed to be effective in dampening new home sales and chilling the overheated property markets in Shanghai, they also caused problems for potential buyers. Their dreams of owning houses in Shanghai or moving to more spacious home have had to be put on hold.

New deposit limits

Under the new regulations, the minimum mortgage deposit requirement for second-home buyers has been raised from 30 percent to 50 percent. And the deposit has to be at least 70 percent if the house is: more than 140 square meters; located outside the Outer Ring Road and costing more than 2.3 million yuan; located within the Outer Ring Road area and costing more than 3.1 million yuan; located within the Inner Ring Road and costing more than 4.5 million yuan.

For second-home buyers with limited budgets, the increased deposit requirement certainly curbs their chances of buying a new house. But the new regulations can also prevent much-needed talents from living in Shanghai. Chen Ting is a good example.

Chen was born and grows up in Shanghai. After graduating from Fudan University with a degree in physics eight years ago, she obtained a master's degree and then a doctorate in astrophysics from the US. Recently she was awarded a scholarship by the Fermi National Accelerator Laboratory.

Despite her academic and scientific achievements overseas, Chen had always been planning to develop her career and life back in China. "I wanted to teach at Fudan University, or work with the Shanghai Astronomical Observatory. But when the new real estate regulations came out this March, I discovered I might not be able to return to Shanghai early," Chen said.

Currently, Chen owns a one-bedroom apartment in Sanlin, Pudong New Area, and this is close to her parents' home. However, her house is some 16 kilometers from where she would like to work, so she had planned to sell her original apartment and then buy one closer to her new work.

"My first thought was to buy a small apartment near my office. But since the downpayment for a second house has been raised to 70 percent, I can't afford that anymore," Chen said. Her second plan was to sell her original apartment and then buy a new one. But after looking at the prices and conditions of houses in Shanghai, she has decided to use the money to purchase a bigger house in Chicago.

"A house with four bedrooms and two living rooms and a nice garden only costs 2.5 million to 3.2 million yuan in Chicago. And the mortgage deposit in America is only about 10 percent. After paying the mortgage and personal income tax, every month I still can keep more than half of my salary," Chen said. In contrast, in Shanghai, a 60-square-meter older house near Fudan University now fetches at least 3.3 million yuan and the deposit would be about 2.3 million yuan.

She also said that while only people with Shanghai hukou were allowed to purchase a house in Shanghai, people without green cards can buy a house in the US as long as they can afford the mortgage repayments.

Chen has given up her plan to return to Shanghai in the near future and feels upset about the soaring prices for property in her hometown.

"Years ago university lecturers still enjoyed housing allowances. But now, even though their incomes remain almost the same, the housing prices in Shanghai have increased by leaps and bounds," she said. "This is probably the fate for my generation."

Last minute deal

Lu Xiaoxiao is an office worker in Lujiazui of Pudong. She signed the contracts for her second apartment online just hours before the new regulations came into effect.

Like Lu, hundreds of thousands of home buyers seized last-minute opportunities to buy properties before the new regulations took force - there had been some signs beforehand that authorities would tighten the rules for residents without Shanghai hukou buying homes. On March 24 and 25 there were a record number of housing transactions -1,776 and 2,495 respectively.

Lu felt lucky she signed her last minute deal - under the new regulations she and her husband would not be allowed to buy property. She said the new regulations had raised the eligibility bar for residents without Shanghai hukou wanting to buy a house in the city, requiring them to contribute to the local welfare and pension system for five consecutive years, instead of two, before they would be allowed to buy a house. And under the new rules, Lu and her husband, two non-locals, are not allowed to buy a house in Shanghai.

Though Lu is happy with her purchase, the experience of buying this house was exhausting. By November 2015, she had decided, with a new-born child, to move from her 40-square-meter apartment to a larger home.

"My parents will come to Shanghai to help me take care of the child, and it is impossible for our family of five to squeeze into such a small place," Lu said.

Though she had actually sold the old apartment in November, it was not until February this year that a bank gave her a mortgage and over the months, as she was waiting for the mortgage, Shanghai's property prices began soaring and the price of the house that Lu planned to buy had also rocketed.

"Because the price was so high, my husband and I felt hopeless - we would not be able to afford a bigger house in Shanghai. We even planned to leave Shanghai and go to a second-tier city in our own province," Lu said. They actually had found jobs and purchased an apartment in that city.

But eventually, considering their career prospects in Shanghai, Lu chose to stay. And fortunately, they managed to buy a bigger house in the city hours before the new regulations came into effect. But other people heading to Shanghai for better work opportunities might not be as lucky.

Domino effect

Certainly non-locals who purchased property after the new regulations would have faced problems. On March 25, the day the new regulations were introduced almost 2,500 property transactions were recorded. But if any of the buyers were no longer eligible, they would have had to return the property and cancel the contracts.

The situation for second-hand home buyers who discovered they were not longer allowed to purchase was even worse. A withdrawal by any purchaser could cause a domino effect.

Real estate agent Ge Sunyu said many of her clients had planned to sell their original properties and then add extra cash to buy bigger homes. These people were both sellers and buyers in the second-hand property market, and they were caught in a chain of buying and selling. If a link was broken anywhere, all the deals would collapse.

One of Ge's clients intended to sell a small apartment to a young non-local couple to exchange for a school district house. The school district property belonged to a middle-aged couple, who wanted to replace their school district property with a small second-hand villa in a suburb.

However, when the new regulations were announced, the non-local couple discovered they had not made sufficient contributions to the welfare insurance scheme and had to cancel their plans to purchase. Because of their withdrawal, the other would-be buyers also had to cancel their transactions. It was a headache for all concerned.

Compiled by Wang Han based on stories from Xinmin Evening News and China Economic Weekly
Newspaper headline: The destruction of dreams

Posted in: Metro Shanghai, City Panorama

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