• Tue
  • Dec 23, 2014
  • Updated: 7:32am
PUBLISHED : Monday, 01 April, 2013, 12:00am
UPDATED : Monday, 01 April, 2013, 5:32am

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


Wang Xiangwei took up the role of Editor-in-Chief in February 2012, responsible for the editorial direction and newsroom operations. He started his 20-year career at the China Daily, before moving to the UK, where he gained valuable experience at a number of news organisations, including the BBC Chinese Service. In 1993, he moved to Hong Kong and worked at the Eastern Express before joining the South China Morning Post in 1996 as our China Business Reporter. He was subsequently promoted to China Editor in 2000 and Deputy Editor in 2007, a position he held for four years prior to being promoted to his current position. Mr. Wang has a Masters degree in Journalism, and a Bachelors degree in English.

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.


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This article is now closed to comments

i cant see that many Hong Kongers are riled by property prices when 95 per cent of households own property or live in massively subsidised housing. Their desire to won property is - as perfectly illustrated by the HOS scheme- because they think they will make money out of it and so want to get on the band wagon. Please note - in a declining market demand for HOS disappears - in a rising market it magically appears.
The problem of rising property price in Mainland China cannot be resolved without first modifying the current tax system.
Forbes estimated that the Government could get as much as 62% revenue (TR) from total sales turnover of ¥6.4T last year. The revenue comes from conveyance tax, property tax, sales tax, value-added tax etc. imposed by the local authorities. With such amount of revenue at stake, no local Government would attempt to touch on this area with serious attitude.
Firstly, we must identify the main objective of trying to contain the property price (PP). In simple terms, the Government thinks that the rapidly increased property price will make homes not affordable by the public in the long run. To curb the property price increase with any abrupt brake will only result in hard landing of the economy and impose a serious threat to the income of the Government. Hence, any attempt to ease the property price increase should be made in a slow but steady pace. In this direction there should be a safety valve in the present tax system to provide for revenue for public housing (PH) purposes. Assuming that 50% of TR is destined for PH in year 1, the Central Government should carry out stringent audit measures to ensure that the Local Government will spend 50% of TR for PH in year 2 and follow up the measures every year afterwards. As PP increases, PH revenue will increase and more public housing units will be available to drive the PP down! The success of this safety
Can you cite your sources?


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