Mainland tightens pre-sale home rules

PUBLISHED : Wednesday, 21 April, 2010, 12:00am
UPDATED : Wednesday, 21 April, 2010, 12:00am

Beijing yesterday moved to hose down red-hot property prices further by banning developers from receiving deposits from prospective buyers of uncompleted homes before getting official approval.

Under the new rules, once the government has granted the green light to developers, they must publish the price of each unit available for pre-sale within 10 days. The move is aimed at restricting developers from pushing up prices before the official launch of a property.

The announcement is the third policy move of its kind in less than a week as Beijing sets about curbing speculation in the property sector. Developers that hoard properties to create a false impression of a supply shortage and then push up prices would be punished, the Ministry of Housing and Urban-Rural Development said in a notice on its website. The notice also said local regulators must grant pre-sale approval to at least one entire building rather than units or floors.

At present, many developers encourage potential buyers to pay a deposit to reserve buying rights before the official launch of their projects. Developers then set selling prices after taking into account the initial buying response.

'The series of measures announced this week show the central government's determination to cool off speculative activities and skyrocketing home prices,' Chen Jie, deputy director of Fudan University's centre for housing policy studies, said. 'They will not stop regulating the market until they see prices falling, or at least stop rising.'

On April 15, the State Council raised mortgage rates on second homes to 1.1 times the central bank's benchmark lending rate instead of the current 80 per cent. Buyers purchasing their second homes must now pay at least a 50 per cent deposit, up from 40 per cent.

The government also set a minimum 30 per cent down payment on first homes bigger than 90 square metres.

Two days later, the central government asked mainland banks to stop loans for third-home purchases and suspend lending to buyers who fail to provide tax returns or provide proof of social security contributions.

'Home buyers' sentiment has changed from optimistic to pessimistic,' Chen said. 'They are waiting to see if the government will issue more measures to hit the market.'

Under the latest policy affecting uncompleted properties, buyers' names cannot be changed after the subscriptions of units.

'All these policies will take some time to have their effects felt,' Lee Wee Liat, a senior property analyst at Nomura International (Hong Kong), said. Developers' cash positions and balance sheets remain strong, so they will not be rushed to slash prices to cash in, he said.

'What we will see first is volume falling for the next two to three months, while prices will be flat or even rise gradually (due to limited supply),' he said.

'Price decline will probably happen only when we move into the fourth quarter of 2010 when sizeable supply hits the market.'

It is possible that prices will fall 20 per cent next year, he said.

Analysts said home prices could see a sharp decline if banks continue to tighten lending.

Outstanding real-estate lending by mainland banks was 44.3 per cent higher on March 31 than a year earlier, the People's Bank of China said on its website yesterday.

New property lending was 845.7 billion yuan (HK$960.2 billion) during the first quarter.

Condition of sale

Number of days within which developers must publish the price of each unit available for pre-sale: 10

Cooling down?

The recent measures announced by the central government to regulate home prices on the mainland

April 15

Buyers of second homes must pay a deposit of 50 per cent, up from 40 per cent; banks told to set mortgage rates at at least 1.1 times benchmark rates

The down payment on first homes bigger than 90 square metres set at a minimum of 30 per cent

April 17

Banks told to stop providing loans for purchases of third homes and suspend lending to buyers who fail to provide tax returns or proof of social security contributions

April 20

Developers told not to take deposits for unfinished apartments without approval

Local regulators told that they must grant pre-sale approval to an entire building, not just some units or floors within

Buyers told their names cannot be changed after subscriptions