Little hope that latest cooling measures will ease property costs

Home prices have been hit before with policies like those announced in recent days only to eventually resume their relentless rise

PUBLISHED : Monday, 01 April, 2013, 12:00am
UPDATED : Monday, 01 April, 2013, 5:32am

These days, mainlanders and Hongkongers may not see eye to eye on many things - political developments in Hong Kong and even the number of baby formula tins that may be bought, to name two examples.

But there is one thing that is sure to rile both sides - property prices soaring far beyond the means of ordinary people.

Shortly after the Hong Kong government announced tough measures to curb property speculation in late February, the central government rolled out its latest set of guiding principles for cooling an overheated property market.

The March 1 announcement set yesterday as the deadline for local governments to release detailed implementation measures.

On Saturday, Beijing, Shanghai, and Chongqing released specific rules, including a 20 per cent capital gains tax on second-hand property transactions, bigger down payments for second-home buyers and more curbs on foreigners and other non-residents seeking to buy properties. The three cities followed Guangdong which took the lead in responding to the order last Monday.

Predictably, the central government announcement's on March 1 triggered a wave of panic among buyers and sellers across the country as they tried to close transactions before the deadline.

The property analysts now expect the latest measures to bring a respite in property transactions after rapid rises in property prices over the past nine months.

But the mainlanders can be forgiven for not holding their breath too long. They've seen all this before - the so-called tough measures to curb soaring prices - only to see them rise again after a while.

Indeed, over the past decade under the previous administration of Hu Jintao and Wen Jiabao , the central government has released "tough" property control measures almost every year. For several years, former premier Wen tried to placate increasingly angry home seekers by vowing to bring property prices to a reasonable level without ever explaining what such a level would be.

The reality is that property prices have become more unreasonable every year. According to some estimates, average property prices have risen by 143 per cent over the past decade nationally. In major cities, like Beijing and Shanghai, prices have increased 500 per cent or more.

The central government and local authorities have together introduced various control measures including capping the number of the properties one can buy and even trying to limit by how much a developer could raise prices, with little success.

Ironically, such curbs have led to other social issues. For instance, some cities, including Beijing and Shanghai, saw a wave of paper "divorces" after limiting purchases to one per household. Couples separated, bought one property each and remarried.

The latest measure from Beijing has tried to plug this loophole by stipulating that single Beijing residents can buy only one home if they have not made purchases in the past.

Robust demand has been sustained by home seekers and a massive rush of speculative capital at a time when there are few viable alternatives for investments. More importantly, local authorities have been largely obfuscating the issue as the land sales have contributed to the bulk of the revenues for their local coffers.

Wu Jinglian , a respected mainland economist, said last week that the local authorities reaped a combined 30 trillion yuan (HK$37 trillion) from land sales over the past few decades by buying farmland cheap and selling it high to developers.

Indeed, as the new premier, Li Keqiang has identified urbanisation as the long-term engine of growth for the economy and up to 300 million farmers are expected to settle in cities, demand for housing will remain strong for years to come. And so will prices.