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Domestic buyers targeted

Marking the start of the ninth five-year plan, 1996 was a year in which the China property market was pinned down with more regulations and more pledges to give it a new lease of life.

After more than three years of wayward development, during which the market slumped because of austerity measures, some kind of structure is finally beginning to emerge.

This year, as the central government has promised, more housing policies are due to be introduced. These should include fewer taxes, increasing credit supply for developers and giving consumers easier access to mortgages.

It is also clear that market growth in 1997 will be led by housing, while oversupply of office and commercial space in major cities will take another two years to ease.

Beijing, Shanghai and Guangzhou have all introduced regulations to bolster sales. Measures include cutting land-lease costs and other real estate-related fees and taxes to encourage developers and investors to build flats for locals.

Beijing has announced it would lower flat prices to encourage sales. Suburban Beijing has about 7.53 million to 8.61 million square feet of unsold flats, selling at a high of 743.2 yuan (about HK$691.18) per sq ft.

Shanghai, where an oversupply problem is expected to drag on for the next two years, is giving residence permits to non-Shanghainese who buy flats in the city worth 400,000 yuan with floor space of at least 861 sq ft.

It has also cut transaction fees by 3.5 percentage points.

Guangzhou is slashing land-lease costs by 25 per cent, with costs for commercial and industrial land getting steeper cuts of 30 per cent.

Developers, who were being charged 11 types of construction fee accounting for more than 15 per cent of total development costs, are now being charged a combined fee which has effectively lowered construction fees to an average of 13.2 per cent of total development costs.

The focus of development, which once relied heavily on foreign capital and investors, has now shifted to domestic buyers. There is huge demand for medium to low-cost housing.

The central Government has decided to promote this sector and has announced that it will be the 'growth engine' of the economy.

Beijing decided that medium to low-cost housing would support economic growth over the next century, and pledged to accelerate financial reforms to support the process.

Although commending the central Government's moves, critics and analysts have said an immature mortgage industry, inadequate legislation and low numbers of people who can actually afford to buy the new homes present serious obstacles.

For a long time, every piece of land and property was state-owned. In order to activate the property market, local governments have been attempting to transfer property rights to enterprises and individuals.

But regulations are still vague.

Shanghai's property market - by far the most advanced - has piloted a scheme under which the government transfers property rights so that land can be leased to investors and developers.

At the same time, other municipal governments are also encouraging individuals to buy the flats they are living in from the enterprises or work units that own them. By doing so, officials hope to speed up the pace of 'commercialising' property. Flats are priced at 'bargain rates' of 10,000 yuan to 30,000 yuan each.

Yet for many, there is little incentive to buy a flat because work units provide housing at a nominal monthly rent. Due to the lukewarm response to the scheme so far, authorities plan to raise rental rates.

But the average Chinese home remains beyond the means of the average household. Mortgage loans would be the answer but while piecemeal mortgage programmes exist, not everyone qualifies and there is an urgent need for a solid national system.

China Construction Bank said mortgages only made up 1 per cent of its total lending over the past five years.

Officials say it is time to tap the domestic market. The nation's savings hit 3.5 trillion yuan last year and are expected to jump by 30 to 40 per cent annually.

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