Cities Across China Tighten Control Over Real Estate Market

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Apr. 2 – In an effort to rein in the country’s soaring property prices, China’s State Council released the “Circular on Effectively Regulating the Real Estate Market (guobanfa [2013] No.17, hereinafter referred to as ‘Circular’)’ on March 1, 2013. The Circular has rolled out an array of property cooling measures, including a 20 percent capital gains tax on property sales in cities where housing prices are believed to be rising too quickly. We outline some of the key measures adopted in Guangdong Province, Beijing and Shanghai below.

Guangdong Province

Guangdong became the first region in China to implement such property control measures. In a statement released by the Guangdong government on March 25, all cities in the province are required to introduce their own measures to help bring rising property prices down to reasonable levels, specifically:

  • Areas where property prices are rising rapidly must impose a 20 percent capital gains tax as required by the central government.
  • Four major cities in the province – Guangzhou, Shenzhen, Foshan and Zhuhai – must continue to enforce curbs on home purchases and alter property purchase restrictions that are not in accordance with the new measures released by the central government.
  • Cities above the prefecture level shall establish a mechanism that allows for the rapid approval of commercial housing projects for apartments smaller than 90 square meters; meanwhile, the construction and sale of small and medium-sized commercial housing projects shall be accelerated.
  • The province will basically complete the construction of 116,000 affordable and government-subsidized houses in 2013 and start constructing another 78,400 at the same time.
  • Cities above the prefecture level shall include migrant workers with stable employment who meet certain conditions in the housing security project.

The statement also provides that officials who fail to bring their cities’ property prices to reasonable levels this year will be held accountable.

In response, both Shenzhen and Guangzhou issued detailed regulations on March 31. According to the regulations, Guangzhou plans to limit the price increase of new houses below the city’s per-capita disposable income growth in 2013, and will adjust down-payment requirements and interest rates on loans for second-home purchases.

Those families without Guangzhou hukou (permanent household registration) are permitted to buy one house in the city if they, within two years before buying a house in the city, have paid tax or social insurance fees continuously in Guangzhou for above one year.

The city also plans to keep its residential housing land supply higher than the actual average annual supply in the past five years.

Shenzhen will also limit home price increases to the growth rate of the city’s per-capita disposable income in 2013 and adjust down-payment ratios and interest rates for second-home purchases “when necessary.”

Beijing

Beijing issued its own property curbing measures on March 30, which look to be the strictest rules in the country thus far. One of the distinct features of Beijing’s regulations is that single adults with Beijing hukou are banned from buying a second home in the city.

Under the previous rules, each family was allowed to own two houses, which has led to a soaring number of fake divorces. In order to act as separate owners, some couples divorce deliberately, so they can buy a second home without having to adhere to tough rules such as higher mortgage rates and down payment requirements. Limiting single adults to one house in the city is expected to curb the “fake divorce” phenomenon.

Key measures adopted by the Beijing government can be found below.

  • Increasing the minimum down-payment for second homes
  • Forbidding single adults with Beijing hukou to buy a second home
  • Implementing a 20 percent capital gains tax on property sellers where the original value of the house can be verified
  • Stop issuing sales licenses for projects with prices that are much higher than the average rate in the region
  • Exempting the 20 percent capital gains tax for individuals selling their only home which they have owned for five years or more
  • Banning individuals/entities who provide fabricated materials in order to buy apartments from purchasing real estate in Beijing for five years
  • Completing construction of 70,000 affordable apartments in 2013

Shanghai

Shanghai released its own property control measures on March 30, which aim to keep housing prices stable in 2013. Key details have been summarized below:

  • Implementing a 20 percent capital gains tax on property sellers where the original value of the house can be verified
  • Imposing greater scrutiny on borrowers who are divorced or come from other cities or countries
  • Forbidding banks to extend loans to buyers of third homes and beyond
  • Requiring financial institutions to adjust their requirements for down-payment ratios and interest rates for second-home buyers at an “appropriate” time
  • Requiring financial institutions, while extending loans, to offer priority to commercial housing projects which have more than 70 percent of their units assigned for small and medium-sized houses
  • Completing the construction of 10,000 affordable houses in 2013
  • Guaranteeing the commercial housing land supply at a level not lower than the actual average annual supply in the past five years

Outside of these key regions, second-tier cities including Chongqing, Nanjing, Xiamen, Ji’nan and Qingdao have also released detailed regulations focusing on controlling housing prices in their respective locations.

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