China’s ‘Silicon Valley’ closes home-buying loophole as sentiment borders on mania

Authorities in Hangzhou moved to prohibit corporate buying of housing, closing what some believe was a loophole that gave an unfair advantage to some purchasers under the lottery system, the latest measures to calm the city’s blistering residential market.

In statement published online Tuesday, the Hangzhou Housing Security and Management Bureau said it had suspended all purchases of new and pre-owned residential property by corporate and institutional buyers.

The administrative measure was unveiled a day after local media reported that three companies owned by one individual had won the right to buy flats at Longxi, a project built by The Wharf (Holdings), through a lottery scheme held on Monday.

“It is a fast-fix policy to better regulate the property sector,” said Yan Yuejin, director of E-house China R&D Institute, a market intelligence firm. “It shows the Hangzhou government has made up its mind in cooling off the property market to guarantee that those who really need a house can get one.”

Hangzhou’s new home prices were unchanged in May from the prior month, a result of the government’s stringent property curbs, including direct price controls, as part of cooling measures in place since 2016.

Large crowds of aspiring homebuyers have flocked to new residential project launches in the city, raising concerns of irrational sentiment in the city, the capital of Zhejiang province, which is also known as China’s answer to Silicon Valley.

“Buyers have turned crazy. Some projects selling a couple hundred units attracted more than 10,000 applications,” said Feng Dechun, a local Hangzhou property agent. “I’ve seen people faint while queuing outside banks to get financial statements to be qualified to join the lottery scheme sales.”

The agent said he became aware of the treasure hunt among buyers when nearly 12,000 entered the lottery scheme to be chosen for the right to purchase one of the 404 units on offer at Sky Blue, a project by Hong Kong-listed developer Ronshine China Holdings.

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“The average selling price was only a bit over 18,000 yuan per square metre, while in the same neighbourhood, lived-in homes are asking more than 30,000 yuan per square metre,” said Feng. “Even a primary school student can do the calculation. People believe they are making money as long as they can buy one flat now.”

Hangzhou unveiled new rules on April 4 requiring developers to adopt a lottery scheme monitored by a government notary if residential projects were oversubscribed. Previously developers were urged to adopt a lottery scheme, but compliance was optional.

Other analysts said buyers were factoring in future value as the city gains prominence as a technology hub.

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“People are betting on the bright future of the city as it is preparing for the 2022 Asian Games and the government is giving initiatives to attract technology companies,” said Yan.

Data from the local branch of Centaline Property showed that average prices of new homes in the six central districts in the city rose 22.9 per cent in 2017, reaching 28,872 yuan per sq m.

In Yuhang district, a suburb of Hangzhou and the headquarters of Alibaba Group Holding – the owner of the Post – outperformed other districts. Last year, average home prices there jumped 42.6 per cent, according to data from the agency.

“People feel panic when they see prices increase that fast and they are afraid that they will never be able to afford one later,” Yan said.

Xian and Changsha have also banned corporate buying of housing in an effort to stabilise their property markets.