Targeted policies will stop property market overheating

By Eva Lee | China Daily | Updated: 2016-10-20 08:27

The recent upcycles in the mainland's housing market has been different from previous ones, property prices have risen rapidly in only a small group of cities following the easing of the restrictions on mortgages. Just 22 cities out of top 70 cities registered price rises of more than 5 percent year-on-year, which was substantially fewer than in past market upturns. In November 2013, 67 out of top 70 cities enjoyed price increases of more than 5 percent year-on-year, and 59 cities did so in April 2010.

However, even though house prices have risen dramatically in only a relatively small number of cities after the policy easing, the price increases have been higher than in the previous upturns. The tier-one cities have registered price increases of up to 38 percent year-on-year and in select tier-two cities prices have risen by up to 45 percent year-on-year. The price increases in previous upcycles were in the range of 10-20 percent year-on-year. The fact that just a small group of cities have experienced high rises in house prices this time, explains why these local governments are under pressure to tighten their policies.

Since the regulations are targeted to curb the investment demand in these particular cities, we expect they will be effective in cooling the sentiment in these markets and slow the pace of price rises in these cities. The policies differ among different cities. But generally, the policies involve restrictions that limit the number of units a household can purchase and raise the down payment requirements for first homebuyers and those upgrading. Since these policies target only demand in cities that have experienced high price increases, they are not blanket policies and so might squeeze some buying demand to other lower tier cities located in the vicinity. Given that the targeted cities have relatively lower inventory levels, it is unlikely to trigger a significant price correction. However, it should trigger a slowdown in property sales volumes in the coming months.