Move to limit the pre-sale of flats 'will fail'

The Guangzhou government's latest measure to restrict the number of flats in pricey projects that can be sold before they are completed is likely to do little to further dampen that city's property market, according to analysts.

The Guangzhou Land and Housing Bureau last week announced on its microblog that it had "implemented timely measures to control the pre-sale scale and the transaction pace of abnormally high-priced residential projects" in the city centre.

This is the first time a mainland government has publicly announced limits on the so-called pre-sale market, but the bureau gave no specifics.

Like other local governments across the mainland, Guangzhou must approve the proposed selling prices of flats, which in itself helps keep a lid on the property market.

"Sales of high-priced projects in the central district have been on the rise recently, which has boosted the percentage share of expensive flat sales, thus causing a structural increase in the average selling price for the entire city," the bureau said last week.

It said the prices of some high-end residential projects near Pearl River New City and other urban areas were too high.

These yet-to-be-completed projects drew some buyers before the official sales started. Once those sales began, the effect was to push the city's average home price to an abnormally high level, which "leads to unusual fluctuation and misleads the market", the government said.

The rise in the price of new flats in Guangzhou, according to agents, is not due to a change in the market but is because the projects themselves are located in prime areas that make them expensive.

Ellis Wong Hin-ming, a general manager at property agency Centaline Group's Guangzhou office, said some new flats in the Pearl River New City area were priced at 60,000 yuan (HK$73,400) to 70,000 yuan per square metre, compared with an average of 16,000 yuan for the entire city.

The units - between 200 and 300 sq metres - may cost 10 million yuan or more.

"I think the impact of the new control on the market will be small … because there are different policies in place already, and each city has similar restrictions," Wong said.

He said the Guangzhou government could tolerate a small number of transactions of expensive flats but not a large batch as that would artificially boost the average selling price.

He said surging home prices in the past few months also helped trigger the latest restrictions.

According to Centaline's deputy research manager, Qu Zhongqi, secondary home prices in Guangzhou climbed gradually from about 16,250 yuan per square metre in February to 17,343 yuan in August.

Both Wong and Qu believe the new policy was aimed at trying to dampen the market during the National Day holiday, which is a peak season for flat buying.

Alfred Lau, a property analyst at Bocom International, the investment banking unit of the Bank of Communications, also said the new policy of controlling the number of unfinished flats that could be sold might not spread to other cities where local governments, including in Guangzhou, must approve the proposed sale prices before flats officially went on sale.