MCLC: Shanghai, Beijing cool housing market

[Denton, Kirk]

MCLC LIST
From: kirk (denton.2 at osu.edu)
Subject: Shanghai, Beijing cool housing market
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Source: NYT (3/31/13):
http://www.nytimes.com/2013/04/01/world/asia/2-china-cities-move-to-cool-ov
erheated-housing-market.html

2 Chinese Cities Move to Cool Overheated Housing Market
By DAVID BARBOZA

In the nation’s capital, the Beijing municipal government said that
unmarried individuals would now be allowed to purchase only one residence.
The city also increased the minimum down payment for buyers of a second
home and imposed a 20 percent capital gains tax on owners’ selling a
residence.

In Shanghai, an identical capital gains tax was announced and took
immediate effect, and city officials pledged to install and enforce other
measures aimed at stabilizing housing prices. The stiffer capital gains
taxes take the place of a 1 percent to 2 percent transaction tax that was
previously assessed on the final price of the property being sold.

The announcements came weeks after China’s State Council, or cabinet, said
the government would take stronger action to ensure that property prices
do not continue to soar, fueling what many analysts believe is a real
estate bubble that could seriously damage the economy and exacerbate
social tensions between the rich and the poor.

Property prices in China have been rising sharply in the last year, with
housing prices in many big cities up an average of 3.1 percent in
February, according to a government survey. In many cities, the cost of
buying a new home has doubled in the last five years.

In a country where investment options can be limited, property is
considered a good store of value.

Michael Pettis, who teaches finance at Peking University and is a senior
associate at the Carnegie Endowment for International Peace, said China
was facing challenges that many other emerging markets were struggling
with: It is awash in too much cash and credit.

“China has a liquidity problem, and so it’s not clear to me changing the
tax structure or fiddling around the edges addresses the real problem,”
Mr. Pettis said. “Raising interest rates would be the single biggest thing
they could do. But they also need to stop credit and monetary growth.”

Some of the new measures detailed Saturday had been anticipated after the
State Council’s announcement in early March. The threat of tougher rules
had set off a nationwide rush to sell properties before city governments
detailed the specific measures they would take, as well as their starting
dates.

Shanghai and other big cities had even seen a surge in the number of
divorce filings at marriage bureaus, with many couples openly admitting
that they were filing for divorce simply to get around property rules and
that they would later remarry.

It was clear in the announcements that the city governments were trying to
close that loophole.

China’s state-run news media also said over the weekend that the central
government was planning to introduce a unified national property
registration system by the end of 2014, which could eventually make it
possible to impose an annual property tax on households — yet another way
the authorities expect to fight housing speculation and fend off bubbles.

Although Chinese cities do not impose annual taxes on holding residential
properties, the government has rolled out detailed measures virtually
every year for the past decade in an effort to penalize speculation in the
housing market.

The efforts have often been effective at temporarily holding down prices,
but the market usually roars back as investors, homeowners — and even
banks and property agents — identify loopholes in the restrictions,
analysts say.

Because China’s booming economy is tied so closely to the property market
— and because the property market is a major source of income for banks,
which issue mortgages, and local governments, which profit from land sales
— any strong government measures to rein in the sector have the potential
to affect the larger economy.

In Shanghai, a city of about 22 million, banks are no longer allowed to
offer loans to residents buying a third home; those seeking a second
mortgage are now expected to make larger down payments and to pay higher
mortgage rates. Shanghai officials also said they would make it tougher
for foreigners, people from other cities in China and divorced individuals
to buy homes, a clear hint that they intended to counter attempts by local
residents to seek divorces in order to circumvent some restrictions.

The authorities in Beijing and Shanghai also promised to build more
moderately priced residences. This year, Beijing said it planned to build
70,000 units of such housing; Shanghai said it expected to build 10,000
units.

“The central government is feeling the heat and not just for social
reasons,” Joe Zhou, a property analyst at Société Générale, said in a
report released last week. He said a push by Prime Minister Li Keqiang,
who took office in March, to promote urbanization as a new key growth
driver “only adds to the urgency to cap property prices, as the strategy
implicitly requires housing prices to be within the reach of future
migrants whose purchasing power is likely to be more limited than those
who have already earned their way into the urban area.”