Beijing beats Shanghai in property sales after policy relaxation

Capital beats Shanghai in transaction volume after a new definition of 'ordinary homes' allows owners to enjoy reduced tax and cheaper loans

PUBLISHED : Tuesday, 21 October, 2014, 5:07pm
UPDATED : Wednesday, 22 October, 2014, 4:49am

Beijing outperformed Shanghai in property transactions last week after the capital boosted the catchment for homes deemed eligible for reduced taxes and cheaper loans as part of efforts to shore up the struggling market.

Home transactions grew 31 per cent from the previous week to 2,191 units in Beijing, faster than a rise of 26 per cent in Shanghai to 4,272 units, according to data from China Index Academy, run by the country's largest real estate website operator Soufun Holdings.

The data indicates signs of recovery in property sales after a rash of policy relaxation in the past few months and analysts expect more to follow, including an eventual tax cut.

"[Shanghai should] immediately copy Beijing's practice and redefine ordinary homes," said Ding Zuyu, a co-president of real estate service provider E-House (China) Holdings.

Shanghai, Beijing, Guangzhou, Shenzhen and Sanya are the only cities that retain home purchase restrictions.

After the central bank's easing in mortgage rules at the end of last month, Beijing announced that homes worth 2.81 million yuan (HK$3.5 million) in aggregate, or 23,760 yuan per square metre, outside the city's sixth ring road were defined as ordinary, which means the owners can enjoy easier and cheaper mortgage loans as well as lower taxes.

For example, those buying their only residence of smaller than 90 sqmetres need to pay a deed tax of only 1 per cent of the transaction value, while buyers of non-ordinary homes need to pay 3 per cent. Families selling their only residence after ownership of more than five years can be exempted from business tax.

The new threshold, much higher than the previous mark of 17,280 yuan per square metre for homes in the same area imposed since 2011, reflects housing inflation in the past four years.

However, the definition for ordinary homes has remained unchanged in Shanghai since January 2012 when homes beyond the city's outer ring of 1.6 million yuan or cheaper are regarded as ordinary.

Shanghai's banking authorities have also clarified that buyers of non-ordinary homes will be barred from access to easier and cheaper mortgage loans.

The result is that transactions of ordinary homes now account for about 90 per cent of the total in Beijing, while the proportion is much lower in Shanghai, at 79.1 per cent for secondary home transactions and 34.5 per cent for new-home deals in the first nine months, according to data from consultancy Shanghai Deovolente Realty.

The consultancy added that most of Shanghai's current ordinary homes were built decades ago and some were in buildings without lifts, deterring upgraders.

"For such homes of more than 20 years old, credit checks on buyers are particularly strict, and they often cannot borrow from banks," it said.

For these buyers, banks impose much higher deposit ratios, typically up to 60 per cent, instead of 30 per cent for other first-home buyers.

In general, mainland banks have not fully taken on board the central bank's repeated calls for 30 per cent off on mortgage rates, putting in doubt the strength of the recovery in property sales.