China property

A rebel holdout of Chinese lore fires the first salvo against the state’s year-long crackdown on real estate speculation

  • Heze, a city of 8.3 million residents in Shandong province, has cancelled the three-year reselling ban imposed in 2017 and given the green light for developers to use more of the capital from pre-completion sales
  • For now, it isn’t clear how long the Heze authorities can hold out against the central government’s year-long campaign to crack down on speculation
PUBLISHED : Wednesday, 19 December, 2018, 1:42pm
UPDATED : Wednesday, 19 December, 2018, 10:18pm

A small city in eastern China has begun to relax curbs on residential property, becoming the first local authority out of 50 Chinese cities to reverse the central government’s year-long campaign to cap soaring prices and crack down on speculation.

The government of Heze – a fourth-tier city with a population of 8.3 million residents – in Shandong province has cancelled the three-year reselling ban imposed in 2017, and allowed developers to use more capital from their pre-completion sales, according to an announcement circulated by the local authority.

“Heze fired the first salvo for easing property curbs, sending a very strong signal across the nation,” said Yan Yuejin, a research director of E-house R&D China Institute. “More cities like it are likely to follow.”

The easing comes amid slowing sales and a bearish outlook in China’s property market. November’s home sales fell 5.1 from last year, a third monthly decline and a stark contrast to July when sales increased 9.9 per cent. The central government ordered provincial and city-level authorities to suppress speculation in the industry, amid concern that housing affordability could become a hot wire socio-political issue at a time of slowing economic growth. Before the government’s coordinated crackdown, national average housing price had soared 17.6 per cent in 24 months, according to data that tracks 70 cities. The largest cities saw the biggest surges, with Beijing prices soaring 28.4 per cent while Shanghai’s surged 31.7 per cent in 2016.

Infographics: What is a city tier, and how is it assigned in China?

As a result of the curbs, the inventory of unsold housing stock rose 1.7 per cent in November across 64 third- and fourth-tier cities, according to data compiled by E-house.

Heze, which earns about a third of its income from horticulture and the cultivation of peony, was known as Caozhou during the Northern Zhou dynasty (AD557 – 581). It is the scene for the Water Margin, one of China’s four great classical novels, about 108 outlaws who made Liangshan in Caozhou their rebel holdout before forcing the Song dynasty government into an amnesty.

The local authorities may be eager to roll back on the curbs because property remains a very substantial source of their fiscal income. Land sales last year reached 22 billion yuan, more than Heze’s 18.6 billion yuan of fiscal receipts, according to the China Index Academy.

“Local governments may take pre-emptive measures to prevent a sharp slowdown in the property market,” said Zhang Bo, an analyst at, a real estate listing firm.

Some signs of a relaxation can already be seen. A meeting of the ruling Communist Party’s Politburo last week noticeably omitted any mention of a maintaining the curb on property prices. Instead, the party’s highest policymaking body stressed the need for a powerful domestic market to drive growth. There is an 88 per cent correlation between real estate investment and economic growth since 2011, according to Mizuho Securities Asia’s calculation.

Prices are inching up in Heze, with home prices in the secondary market rising 6.9 per cent to 6,829 yuan per square metre in December, compared with last year, according to data by Nationwide, average prices rose 0.9 per cent in November from a month earlier, according to the National Bureau of Statistics.

To be sure, it isn’t clear how long Heze can hold out against the central government’s crackdown. A premature relaxation in 2011 by the local authorities of Foshan in Guangdong province had to be rescinded 24 hours after it was announced, under pressure by the central government.

Heze’s officials could not be contacted for comment. The Shandong government’s housing and urban-rural development commission said it would adopt a city-by-city approach in home prices, where local authorities can decide the appropriate administrative measures, according an unnamed official quoted by Chinese media.

The shares of two developers that are most exposed to Shandong surged by their 10 per cent daily limits after reports of Heze’s policy roll-back. Shares of Lushang Property rose to 3.49 yuan on the Shanghai exchange while Rongan Property advanced to 2.65 yuan in Shenzhen.