Advertisement
Advertisement
A sales assistant speaks to a customer in front of a model of a residential complex at a real estate exhibition in Shanghai on April 30, 2015. Photo: Reuters

New | Beijing’s conflicting housing policies seen fueling a potential property bubble

Credit is leaking into major cities, pushing up housing prices at an destabilising rate, analysts say

China’s top policy makers, gathered in Beijing for the National People’s Congress (NPC), pledged to tighten home buying restrictions in larger mainland cites as part of efforts to stabilise home prices, although the cooling measures were dismissed by property experts as unlikely to succeed in tamping down the red hot housing market.

In a separate move, Premier Li Keqiang announced plans to implement a value-added tax (VAT) to replace a business tax in the property and construction sectors from May 1, although few details on the new tariff were provided.

Surging home prices in first tier cities have been among the most talked about issues on the sidelines of the annual NPC meeting, which kicked off Saturday.

Chen Zhenggao, the country’s housing minister, said the central government is working closely with authorities in Beijing, Shanghai, Shenzhen and Guangzhou to introduce measures to help rein in the market.

These include enforcing housing purchase restrictions, using differentiated tax and credit policies, and clamping down on any illegal trading to stabilise market sentiment, Chen said.

Du Jinsong, head of Asia property research at Credit Suisse said the government has a difficult balancing act between its conflicting policy goals of spurring housing markets in smaller cities while attempting to cool things down in larger cities. Among the unintended consequences, credit appears to leaking into the housing market in first tier cities, stoking up prices in what many believe is an already overheated market.

“It is obvious banks have a stronger incentive to give credit to a bullish housing market,” Du said.

China’s continuous policy support to the housing sector since late 2014 has resulted in a U-turn in prices in major cities, led by Shenzhen and Shanghai.

Prices in Shenzhen jumped 53 per cent in February over the past 12 months, followed by Shanghai with a 15 per cent hike, according to real estate data provider China Index Academy.

“The tightening policy is hardly having any effect,” Du said.

Meanwhile, many smaller Chinese cities are glutted with excess supply, as official data shows 718 million square meters of unsold commercial housing space at the end of 2015, a 15.6 per cent increase on year.

Gong Min, a senior research manager with Shanghai Centaline Property Consultants, said the policy focus should be prohibiting shadow margin lending, as this is the driver for overheated prices.

Mainland media have reported that speculators using margin lending through agencies have a presence in Shanghai and Shenzhen’s housing markets.

In terms of the use of VAT instead of business tax, Alan Jin, property analyst at Mizuho Securities, said the impact on developers remains unclear as it is not known whether land cost can be VAT deductible.

“If land cost could be deductible, that would be a good news to most developers,” Jin said.

Developers currently face a 5 per cent tariff on unit sales.

The rate of VAT has not been announced yet, although consensus expectations are for 11 per cent.

“We expect this change to the tax code to put pressure on many developers’ margins and cash flow—at least initially. This is because many property development costs will be difficult to document through receipts (to receive an exemption),” he said.

Jin was more optimistic about the tax reform, saying that 11 per cent VAT versus 5 per cent sales tax means developers will pay lower tax if their profit margin will be below 50 per cent.

“We don’t know the details, but it is likely the government wants to help developers to save on tax expenses as a way to stimulate property investment,” Jin said.

Post