China property

Shanghai tightens rules on buying second homes to cap soaring property prices

Down payments increased, non-locals face stricter regulations, among other policy changes to cool overheated market

PUBLISHED : Friday, 25 March, 2016, 12:07pm
UPDATED : Friday, 25 March, 2016, 10:11pm

Shanghai has increased mortgage down payments, raised the threshold for non-locals’ home purchases and tightened oversight on financing through the shadow banking system to rein in its overheated property market.

The city government said the new rules, which took effect on Friday, reflected its leaders’ determination to ensure the sector’s stable growth.

Shanghai property market beset by ‘panic buying’ on the back of favourable policies

But the changes also sparked growing suspicions about local protectionism and triggered doubts about its effectiveness amid rising pent-up demand for homes in the global financial hub.

Shanghai banks will require a 70 per cent down payment for buying second homes bigger than 144 square metres, or properties that cost more than 4.5 million yuan (HK$5.37 million). In other parts of the mainland, the requirement is 40 per cent.

The city also raised requirements for non-local residents buying homes in the metropolis. Non-local residents are not eligible to buy a flat unless they have been employed by a local firm for at least five years – up from the previous two-year period.

Gu Jinshan, Shanghai’s housing department chief, said the authorities also planned to set up a system under which payment for property transactions could be monitored – a move to stem funds from the shadow banking system being used for home purchases.

Shanghai would “strengthen coordination among various authorities to fine-tune monitoring mechanisms, closely track the market movements, and roll out relevant policies,” Gu said.

For Shanghai property, time is money

Shanghai’s party secretary Han Zheng said this month it would take steps to curb the rapid growth of housing prices and crack down on illegal activities that inflated home market bubbles.

It’s unfair that the city needs us to work for its prosperity but bars us from buying properties
Chen Zhiyi, Jiangsu resident working in Shanghai

Gu said monetary easing, a short supply of homes and unethical behaviour had been the driving force of hefty price increases in Shanghai properties since the second half of last year. First-tier cities including Shanghai, Beijing, Guangzhou and Shenzhen, have seen a leap in home prices despite the central government’s stepped-up efforts to cut oversupply of homes in lower-tier cities.

Shanghai spearheaded the move among the first-tier cities to employ harsh austerity measures to cool the market. Shanghai’s home prices jumped 25.1 per cent in the past 12 months, official data shows, but anecdotal evidence suggests that costs for an average dwelling could have surged more than 50 per cent.

Kenny Chan, executive director of Shanghai developer Future Land, said the policy changes might have a big impact on the luxury-homes market, but warned that prices would remain high if land supply for buildings did not increase.

China property bubble bound to burst, say experts

The Shanghai branches of the central bank and the banking regulator urged local banks to strictly implement mortgage policies to help the local government control its overheated property sector.

“It’s unfair that the city needs us to work for its prosperity but bars us from buying properties,” said Chen Zhiyi, a Jiangsu resident working in Shanghai.

Additional reporting by Summer Zhen