21 cities introduce new regulations to curb property speculation

China's latest measures to regulate its housing market should rein in speculative house purchases, contain bubble risks and stabilize the market. A total of 21 Chinese cities have made recent changes to market rules, including higher down payments and restricting purchases.

China's housing market started to recover in the second half of 2015 after cooling for more than a year, boosted by interest rate cuts and lower deposits.

According to the National Bureau of Statistics (NBS), prices rose in over 90 percent of bigger cities surveyed in August, up from 73 percent in July and 79 percent in June.

Prices in 100 major Chinese cities rose 14.9 percent in the first nine months of 2016, with August and September seeing record month-on-month growth of more than 2 percent, according to the China Index Academy (CIA), a private property research institute.

In Nanjing the price of new homes increased by 4.1 percent from July to August, and August prices were up 38.8 percent from last year's.

The price acceleration came as excess money supply led to strong investment with buyers looking to profit from further price increases in future, said Zhang Dawei, an analyst with Centaline Property.

The regulations should reduce the expectations of property speculators while protecting ordinary homebuyers' interests through more land for building, said Liao Junping, a professor of the real estate department of Sun Yat-Sen University.

Liao partly blames a lack of new building plots for the rises, with prices of building land in many cities now higher than those of nearby existing homes, implying that home prices in these areas are set to increase. To counteract this shortage, Shenzhen, for example, plans to increase land available for building by 800 hectares by 2020.

In some cases, developers must agree to build some low-cost houses for rent or sale to participate in auctions. Guangzhou, capital of south China's Guangdong province, will increase land supply but only grant land to those developers who agree to build more low-cost homes.

Increased down payments will help lower credit risks for banks and channel liquidity to the real economy, said Liao.

Central bank data showed banks in August lent 295 billion yuan ($45 billion) for mortgages.

China, without doubt, has housing bubbles, said Zhou Jingtong, a senior researcher with the international finance institute of the Bank of China (BOC), who suggests the government be on high alert for overdependence on the property market, which runs the risk of asset bubbles.

The banking sector should balance credit flow and lend more to businesses serving the real economy in line with supply-side structural reform, suggested Zong Liang, a senior researcher with the BOC.

In addition, with the housing market recovery uneven from city to city, local authorities should tackle their specific local issues in stabilizing the market, said Liao Junping.

In bigger cities, credit should be tightened, but for others - smaller cities with high inventories - the major task should be destocking, said Liao.

(China Daily 10/15/2016 page14)