China’s residential property market defies cooling measures

Everyone is talking about growth slowing in China, but the country’s residential property market continues to defy expectations and prices are continuing to rise.

Data shows that China’s economic growth slowed in the second quarter of 2013. Its economy grew by 7.5%, down from 7.7% in the January to March period.

However, property prices in the Chinese residential market continued to grow in the first six months of 2013. According to Knight Frank’s Global House Price Index, which measures mainstream house prices in key cities around the world, property prices in China have risen 10.8% so far in 2013.

The central government’s five new measures introduced in early March represent the latest attempts to try and cool property markets and control rapid price growth. But so far the effect is limited.

In Beijing there is a 20% capital gains tax is imposed on pre-owned home sales. This is exempted if a home owner sells the property after over five years from its purchase and the apartment is the only one owned by the family. Single adults with a permanent Beijing resident registration are allowed to buy only one apartment if they have no other homes registered under their names. The down payment ratio for a qualified family’s second home has been increased to 70%.

A new home price control target has been set in Shanghai with the aim of keeping prices stable. Shanghai has also introduced differentiated credit policies. Banks are not allowed to extend loans to buyers of third or more homes and should adjust their requirement for down payment ratio as well as interest rates for second home buyers. A 20% capital gains tax on property sellers will be strictly levied in the city if the original values of the homes can be verified.

In Guangzhou the ceiling of new home price growth is pegged with the increase in per capita disposable income. Non-registered residents are eligible to buy only one home in the city if they are able to present income tax or social insurance certificates to prove that they have resided in the city for a cumulative 12 months over the past two years prior to their home purchase.
‘Witnessing how different local authorities have responded to these policies underlines the issues that China continues to battle with as it tries to cool its housing market down,’ said Nicholas Holt, Knight Frank’s Asia Pacific research director.
‘On the one hand, local authorities do not want to bite the hand that feeds them, while on the other, they must be seen to support China’s State Council policies,’ he pointed

‘This is all being fuelled by investors who, amid growing wealth continue to invest significant proportions of their money into property. The lack of alternative investment options for many retail investors makes this situation unlikely to change,’ he added.