Ban on China developer equity capital raisings to be lifted for cheap housing

PUBLISHED : Monday, 22 July, 2013, 12:00am
UPDATED : Monday, 22 July, 2013, 2:51am

Beijing is poised to lift a three-year ban on capital raisings on mainland stock exchanges by property developers, as part of Premier Li Keqiang's efforts to accelerate the construction of low-cost housing and upgrade living standards in run-down areas.

The policy change is a sign the new leadership will phase out measures introduced by the previous administration, such as restricting home purchases, to clamp down on the property sector.

Instead, the incumbent cabinet is likely to rely on market forces to rein in the runaway housing industry, say people with knowledge of the thinking of top regulators.

According to officials at investment banks and property developers, the China Securities Regulatory Commission (CSRC) has started accepting applications from listed developers to sell shares. Yet it is not clear when the first capital raising on either the Shanghai or Shenzhen stock exchanges would be allowed.

Developers willing to earmark the proceeds of the capital raisings for the construction of low-income housing for poor people or for the upgrading of dilapidated dwellings in run-down areas would be the first to get approval to raise funds on the stock market, the sources said.

"It's quite likely that the ban on such raisings will be lifted very soon," said one person at a Shanghai securities company. "But the regulator has yet to make it clear which developers will qualify for the refinancing."

The CSRC told a media briefing on Friday that it would not give the go-ahead to developers' refinancing proposals unless applicants obtained approval from the Ministry of Land and Resources. A CSRC statement indicated that the securities regulator would open the door for developers' refinancing plans.

Beijing banned developers from raising additional funds on the stock market in 2010, as part of measures aimed at cooling down the red-hot real estate sector. The previous cabinet, led by former premier Wen Jiabao, also used administrative measures, such as limiting residents' home buying and curbing mortgage loans from banks, to cap soaring property prices.

In its latest round of measures, the government also limited land sales, to curb new house construction.

But to date, the measures have proved unsuccessful and home prices have continued to rise. Instead, said analysts, the government should encourage the construction of cheap houses, which could help curb rising prices as well as benefit lower-income households, the main victims of the overheated property market.

A source close to the top policymakers said Li was determined to use other policy tools, including property taxes on those who own more than two homes, to rebalance the housing sector.

Albert Lau, managing director for China at property consultancy Savills, said policymakers would have to understand the market before establishing new measures.

"If efforts are made to increase the construction of low-income housing, that will be the right approach to take," he said.

Average new home prices in the 70 major mainland cities rose 6.8 per cent in the year to June.