Mainland cities in bid to get around market curbs
Cash-strapped mainland cities attempting to boost their housing markets are playing a 'cat-and-mouse' game with their bosses in Beijing who are trying to tame property speculation.
Twice over the past four months, Beijing has struck down separate bids by Foshan and Wuhu city governments to ease housing curbs. However, indications are growing that other city governments may launch fresh attempts to relax the curbs, defying edicts from the central government.
For those city governments desperate to shore up revenue from land sales to fund infrastructures and other expenses, a healthy property market is a necessity.
But Beijing continues to toe the hard line. Premier Wen Jiabao has repeatedly said that the curbs must remain in force to lower home prices to a reasonable level.
Alfred Lau, an analyst at Bocom International, said city governments would continue to come up with solutions to revive the property market.
'Funding pressures are likely to force other local governments to ease the housing curbs but the room for them to get around the curbs is becoming smaller after Foshan and Wuhu,' Lau said.
Michael Choi Ngai-min, the chairman of Land Power International, said income from property accounted for 40 per cent of government revenue for small cities.
'It is like a never ending game of cat and mouse. A tug of war is going on between the central government and local governments as the latter, particularly small cities, are in dire need to raise revenue,' Choi said.
The number of sites sold in 129 cities halved last month from December last year, according to mainland agency Homelink.
In Shanghai, land sales revenue last month plunged 70 per cent from a year earlier to 2.62 billion yuan (HK$3.22 billion). In Guangzhou, it fell to 290 million yuan from 2.8 billion yuan in January last year.
Despite shrinking revenue, local governments need to continue to pay the salaries of civil servants and other expenses.
If the market remains depressed, they fear developers will run out of cash to complete their projects. That would increase unemployment and deepen social problems, said Choi.
On February 9, Wuhu, in Anhui province, said it would offer subsidies of 50 yuan per square metre to those buying new homes of 70 to 90 square metres, and 150 yuan a square metre for new homes of less than 70 sqmetres. The city government would also waive deed taxes for those who bought for their own use. The subsidies were planned to last until December 31.
Deed taxes are imposed when the deeds to a property are updated after a transaction.
Three days after announcing the subsidies, Wuhu said it was reversing the plan after reportedly facing pressure from Beijing. This comes after Foshan abandoned its plan in October to allow residents to buy another home if it cost less than 7,500 yuan per square metre.
Wang Yulin, a senior official with the Ministry of Housing & Urban-Rural Development, said local governments should stick to the national housing control policy instead of straying away from it or adjusting it.
But not all local authorities are listening.
More than 14 cities, including Shanghai, Beijing, Hangzhou, Hefei, Wuhan and Guangzhou, are either easing criteria for housing to help more people qualify for preferential tax treatment or relaxing land sale policies.
Shanghai will raise the price threshold for a so-called 'normal unit' - flats less than 144 sqmetres - to 3.3 million yuan from 2.45 million yuan from next month. Buyers of such units pay lower deed tax of 1.5 per cent, compared with 3 per cent for luxury units.
Hefei, the capital and largest city of Anhui, is one of the few cities that have escaped central government scrutiny of their property policies so far. On February 1, Hefei said it would simplify the application process for redeveloping industrial land into commercial use.
The owners of such sites need not return them to the city government for reauction or retender once they obtain approval for change in land use.
To boost investment in commercial property, the city will offer discounts of 30 to 50 per cent in land prices for any developments that involve investments of more than 500 million yuan.
'It will rejuvenate the market, and Hefei can generate more income if the measures are able to attract more investors,' said Lau.
Zhongshan, in Guangdong province, has raised the threshold of homes requiring sale registration to 6,590 yuan per square metre from 5,800 yuan.
Alan Chiang Sheung-lai, the head of residential property for greater China at DTZ, said such minor changes were unlikely to give a big boost to property prices.
Despite the introduction of a string of cooling measures over the past year, Chiang said average home prices across the nation still edged up 4.3 per cent last year.
Home prices in first-tier cities such as Beijing were expected to fall 5 to 8 per cent this year while prices in small cities would drop 20 per cent, he said.
Bankers last year estimated that up to 3.2 trillion yuan in loans, or 35 per cent of the total, that largely used land as collateral and were extended to local governments would mature over the next three years.
It is not only small cities that are tweaking property policies. The Guangzhou municipal land resources and housing administrative bureau indicated last month its intention to review the ban on buying more than two flats.
The bureau, according to Guangzhou Daily, said it was studying the possibility of easing the ceiling on the number of units larger than 90 sqmetres that could be bought. This sector is largely dominated by investors and those who upgrade their homes. But the bureau said the cap remained unchanged for units smaller than 90 sqmetres as they were mainly bought by end-users.
David Ji, the head of greater China research at DTZ, said enforcing such restrictions was easier said than done. 'Couples prefer to divorce to get around the restrictions of buying more than two homes. It is hard to differentiate who is qualified to buy more flats and who is not,' he said.
Ji said the central government had sent teams to small cities to check whether policies were being followed, signalling its tough stance and that it would not tolerate any action contravening its austerity measures.
'If other cities rush to follow Wuhu, the central government's efforts to curb prices for the past year will be wasted,' he said.
The amount in new loans, in yuan, mainland banks provided property developers and homebuyers last year