China introduces new real estate cooling measures

 
The finance ministry, in a related announcement, said some tax breaks that encouraged housing purchases will be scaled back.
 
And in a signal that further changes in real estate policy are likely, the government statement said work on pilot programmes for changes to real estate taxation would be speeded up, and eventually rolled out across the nation.
 
The moves, announced in a statement by the State Council, China’s cabinet, add to measures unveiled in April that have so far achieved limited success in terms of bringing prices down to more affordable levels.
 
Official figures do indicate that prices are slowing but they have not yet begun to fall. A key sentiment is that making properties more affordable is vital to avoid resentment amid fears that it could lead to protests.
 
The latest government statement said that the down payment on all home purchases must now be at least 30% of the total price for all properties, up from around 20% previously. The rate had already been raised to 30% for properties bigger than 90 square meters.
 
In addition to banning mortgage loans for third home purchases, the State Council also said banks had to make sure that other consumer loans aren’t being used to buy property. Analysts are confident that the new measures will have an effect.
 
‘The ban on loans to home buyers looking to buy their third homes, if effectively implemented, will have a serious impact on the investment activity in the market,’ said Johnson Hu, an analyst from UOB Kayhian.
 
Some analysts had expected the government to take additional measures after private-sector estimates showed that transactions and property prices rebounded in August and September.
The revival seemed to show that the set of measures announced in April had had limited effect.
   
Although there is an annual tax on commercial properties, residential property is exempted. Some local authorities in some cities have been discussing removing that exemption for at least some types of housing.
 
‘The market is expecting more details about the tax and how restrictive it could be, that is the biggest shoe to drop,’ said Jacky Zhang, an analyst from Capital Securities.
 
Reflecting the government’s desire to ensure that construction of new houses continues to meet demand, the State Council also reiterated that it would boost the supply of smaller homes and encourage financial institutions to support low cost housing projects.
 
Beijing is determined to contain property prices, according to Bank of America-Merrill Lynch economist Lu Ting. The new measures could rattle markets, he said, but the focus on supply should ensure that new investment in real estate continues to be robust.
 
But ordinary people expect prices to keep rising. A central bank survey in August showed that 36.6% of residents expect property prices to rise in the next three months, compared with 29% in May.
 
In the central bank survey, 72.2% of consumers responded that current property prices are ‘too high and hard to accept’, while 15.6% of them said they planned to buy an apartment in the next three months.