Across The Border

‘Flawed’ land supply policy to blame for Beijing’s soaring housing prices, analysts say

PUBLISHED : Thursday, 23 March, 2017, 7:43pm
UPDATED : Thursday, 23 March, 2017, 11:57pm

New restrictions on home purchases in Beijing are unlikely to rectify market distortions and ease sky-high prices, analysts say.

Homebuyers are prepared to pay a premium for proximity to government services and elite schools while other factors, especially a shortage of new land supply, have been cited by analysts as a factor in driving the surge.

Recent efforts by officials to rein in residential prices, including tightened down-payment requirements in October for first-time and second-home buyers, proved fleeting.

In February, 11,000 home were sold in Beijing’s secondary market, up 75 per cent from the previous month, according to real estate agency Lianjia. Prices grew 4.6 per cent to 63,579 yuan (US$9,232) per square metre.

Homes in favourable school districts in Beijing led the gains, with some reportedly fetching more than 200,000 yuan per square metre, equivalent to 28 times the average monthly salary in the city.

“Wealthy Chinese want to come to Beijing, which will support the property market. The situation is just like Hong Kong,” said Zhang Dawei, chief analyst with Centaline Property.

Research showed graduates from a Beijing secondary school were 41 times more likely than a comparable student from the rural province of Anhui to be admitted to Peking University. When compared to counterparts in neighbouring Henan province, Beijing students were 28 times more likely to be accepted.

“There are many corporate headquarters in Beijing. A Fortune 500 company won’t relocate to Baoding in Hebei, nor will jobseekers,” said Liu Feifan, an analyst with Guotai Junan International.

To help curb migration to the city, Beijing authorities have limited the supply of new land available for developement. Last year, just 420,000 sq metres of land zoned for residential development was released, compared with demand for an estimated eight million sq metres.

In February, the city unveiled a plan to cut this year’s residential land supply to almost half of the 2016 level.

Independent economist Ma Guangyuan said the policy had raised market expectations of future land scarcity and pushed up home prices.

“The government shouldn’t create artificial scarcities, which lead to panic buying,” he said.

Last week, Beijing imposed the harshest down-payment requirements on record in a further effort to cool the market. Under the new rules, the down payment for some second-home buyers was raised to 80 per cent while mortgage loans were limited to a maximum 25-year term.

Toni Ho, an analyst at RHB-OSK Securities, said the tightening would only serve to dampen sales while doing little to curb prices.

“The key problem – a shortage of land supply – has not been solved yet,” he said.

Wealthy Chinese want to come to Beijing, which will support the property market. The situation is just like Hong Kong
Zhang Dawei, chief analyst, Centaline Property

However, Beijing authorities have historically been reluctant to increase land supply to help meet demand.

Decisions on urban land supply are made among the state and local governments levels, which can lead to conflicts.

Nobuyuki Koga, chairman of Nomura Holdings, said in Beijing last weekend that city officials wanted to keep land prices on a rising trend to help top up government coffers as land sales to big developers were a major component of government finance.

He suggested allowing rural residents to sell their land rights to individuals or enterprises as a way to replenish land stock.

Beijing was likely to face land shortage in the foreseeable future under its policy-led model as officials focused on population growth in the city, said Xie Haoyu, an analyst at Huatai Securities.

“The supply-demand gap will exist for a long time,” he said.

The amount of residential floor space for sale in the city fell 29 per cent in February to a record low of 6.46 million sq metres from a year earlier, according to E-house China R&D Institute.

However, Zhang concurred with the government’s current focus on population growth, saying the city’s secondary residential market was big enough to meet demand.

He added that efforts to transfer some local industries and functions to outlying areas and neighbouring Hebei province were having “some effect” in cooling demand.

Other analysts noted that homebuyers remained confident on the outlook for prices as successive market-cooling attempts had ended in failure.

Some even viewed the policy tightening as a good buying point “or else they don’t even have the opportunity”, Ma said.

The article has been amended to fix typographical errors