China’s tightening measures aimed at rooting out housing speculators end up hurting genuine buyers
- Many prospective buyers across the country say that the measures intended to keep speculators out are unintentionally causing them heartache
- Analysts say speculators will find a way to get past the barriers erected to keep them out
“The home prices are driving me mad,” said Franco Feng, 36, a Shanghai resident who is in the market for a three-bedroom flat. “The wild price surge has made it utterly difficult for me to own my home.”
While official data showed second-hand home prices in Shanghai rose 6.3 per cent in 2020, many property agents said that the increase was at least 15 per cent, led by a buying euphoria that started three months ago after nearly three years of stable growth in prices.
Feng, who owns and operates a business consultancy, had a budget of 10 million yuan (US$1.55 million) and initially felt confident that he would easily get a home to his liking.
“To own a flat I targeted last year, I have to pay at least an extra 1 million yuan,” Feng said, who is getting married soon. “That’s a big sum particularly after the coronavirus pandemic dented my company’s sales last year.”
China’s monetary easing to combat a slowdown arising from the Covid-19 pandemic last year led to a homebuying euphoria in big cities. As of December, the mainland’s residential property market rose for a 34th straight month, according to the National Bureau of Statistics. Prices of pre-owned homes in tier one cities rose 8.6 per cent from a year earlier.
Mortgage rates for first-time homebuyers stand at 4.9 per cent and 5.4 per cent for second homes. White-collar executives in Shanghai view it as cheap credit compared to the returns for low-risk wealth management products offered by banks which normally hover around 4 per cent. Above all, mainlanders believe that property offers a sound hedge against inflation.
“They are wary of a sharp rise in prices and many of them are buyers with real demand to own a home or upgrade their housing conditions,” said You Liangzhou, owner of property agency Baonuo in Shanghai. “There is a mentality among the buyers that ‘you will miss the boat if you do not find a home to buy now’.”
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Over the past two decades, elevated housing prices have been viewed cautiously by China’s leadership as they fear it could trigger social unrest. The red-hot home market, driven by cheap credit and high leverage, carries the risk of a hard landing for the economy.
When Chinese President Xi Jinping said in 2017 that homes are “for living in, not for speculation”, he was sending a clear message to speculators that policies would be put in place to curb their activities.
As such, Beijing frequently steps in to keep a lid on home prices when there are signs of overheating. But measures like increasing mortgage rates, higher down payment requirements and home purchase restrictions seem to only have a temporary effect on preventing prices from rising further.
“Banking and housing authorities are combining efforts to rein in the unbridled growth in home prices,” said Yan Yuejin, director of E-house China Research and Development Institution. “We see growing signs that governments at all levels are prepared to roll out stringent policies to cool the market.”
In Shanghai, divorced homebuyers will no longer be considered first-time buyers for a period of three years if they have owned a property during their marriage, according to a notice by the Shanghai Housing Bureau. That means divorcees will have to put more money upfront to buy a home and will not be eligible for the higher mortgage allowance enjoyed by first-time buyers.
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The measure is an attempt to crack down on married couples who fake their separation on paper – but still live together – to qualify for property allotments and higher mortgage entitlement.
On Monday, Shenzhen became the first mainland city to publish a reference price list for pre-owned homes in 3,595 residential communities to guide real estate agencies to issue reasonable listing prices and help banks to contain bad-loan risks.
Nevertheless, analysts said that speculators always find a workaround to the problem to the detriment of bona fide buyers. They could always use consumer loans or credit granted to companies buy homes, and other practices that are illegal, they said.
“With mortgage rates stable, the impact of tighter property financing on homebuyers will remain limited,” said Rosealea Yao, analyst with Beijing-based research firm Gavekal Dragonomics.
“The recent slowdown in mortgage growth will not have a major direct impact on national sales volumes.”
Genuine homebuyers, however, contend that the austerity measures targeting speculators were hurting them.
In Hangzhou, Marble Xia, 32, and her husband have been looking to upgrade from a 750 square feet, one-bedroom flat to a more spacious home so that their two-year daughter could have her own room.
To circumvent the higher down payment requirement of 60 per cent for a second home and qualify for a higher mortgage quota, Xia decided to transfer her mother’s hukou to Hangzhou last year. However, Xia’s dream of giving her daughter a separate room were quashed after the government rolled measures to cool the property market. One of which now require a person to hold a Hangzhou hukou for five years to qualify for buying homes.
“Obtaining a home is never easy,” Xia said. “We do not have enough cash, nor do we have special connections. The process of upgrading to a bigger house is turning out to be exhausting.”
