Price controls eased at high end for major cities in China

Lifting of price caps on home pre-sale licences in Beijing and Shanghai will boost developers, but some see little impact for broader market

PUBLISHED : Tuesday, 28 January, 2014, 1:36am
UPDATED : Tuesday, 28 January, 2014, 3:42am

The mainland's top cities lifted a price cap on home pre-sale licences earlier this month, in a move that will release blocked high-end projects and add fuel to an already red-hot land market.

However, it does not mark a loosening of a broader tightening campaign targeting the property sector, now in its fifth year, industry analysts said.

"The measure can be reapplied towards the end of this year if needed," said Lu Qilin, research head of consultancy Shanghai Deovolente Realty.

Shanghai imposed an implicit limit on the price of new homes that could be approved for pre-sale in November. In one example, Shanghai media reports said it was set at 20,000 yuan (HK$25,420) per square metre in the city's Baoshan district. That month the city also intensified other measures to curb price rises, including harsher purchase restrictions, after the price of housing rose more than 20 per cent in the 12 months to October.

Beijing imposed a 40,000 yuan per square metre price ceiling at a closed-door meeting with developers in November, while Shenzhen and Guangzhou took similar steps. But this month, both Beijing and Shanghai gave the nod to expensive residential property projects, apparently removing the price limits.

"We are trying to rein in home price rises via increasing supply this year," said a source at Beijing's housing bureau, referring to the capital's plan to build 50,000 new homes this year - to be priced 30 per cent lower than those in the same neighbourhood - for middle-class and low-income families.

That would bring housing policies in line with President Xi Jinping's preference for market-oriented tactics, analysts said. To that end, the central government has said it will let cities address their own housing problems without imposing nationwide policies.

A villa project in Shanghai's Baoshan district was approved for sale on January 6 at an average price of five million yuan per unit, or about 30,000 yuan per square metre, the developer, Shenzhen-listed Yango Group, said.

Beijing gave this year's first pre-sale licence to the Thaihot Cathay Courtyard project in Chaoyang district, with the highest price set at 100,537 yuan per square metre for a house with gross floor area of 352.54 square metres. The developer declined to comment on whether any compromises were made in order to get approval.

"I don't see it as a relaxation in overall property policy," said Kaven Tsang, senior analyst with Moody's corporate finance group in Hong Kong, adding that luxury homes were only a small part of the mainland's housing market and resuming pre-sale approvals would not result in a full turnaround for developers even though it could improve the cash flow of some players.

Li Enping, a researcher at the Chinese Academy of Social Sciences in Beijing, said: "A price cap is the least workable measure and will be eliminated sooner or later. I will look at land supply, home purchase restrictions, property taxes and credit rules for indications of policy change."

However, analysts expect the move will boost developers' confidence about home price increases in top cities, such as Beijing and Shanghai, which are already suffering a home supply shortage.

Sunac China, a Hong Kong-listed mainland developer, has been aggressively snapping up land parcels in prime locations in top cities.

A consortium led by Sunac bought a block of residential land in Beijing's suburban Mentougou district for 5.87 billion yuan, a new record and 50 per cent higher than the floor price of 3.91 billion yuan, by public tender last month.

That followed the 4.3 billion yuan purchase of a land parcel in central Beijing in September for more than 73,100 yuan per square metre. Sunac founder Sun Hongbin said he expected the selling price would be at least 150,000 yuan per square metre when the project was built.

"A limited land supply would benefit developers of high-end houses," Sun said earlier this month. "There's no doubt that purchasing power remains robust and our upbeat forecasts will prove correct."