China’s top policy makers pledged to tighten home buying restrictions in larger mainland cites as part of efforts to stabilise home prices, although the cooling measures were dismissed by property experts as unlikely to succeed in tamping down the red hot housing market.
In a separate move, Premier Li Keqiang announced plans to implement a value-added tax (VAT) to replace a business tax in the property and construction sectors from May 1, although few details on the new tariff were provided.
Surging home prices in first tier cities have been among the most talked about issues on the sidelines of the annual National People’s Congress (NPC) meeting, which kicked off Saturday in Beijing.
Chen Zhenggao, the country’s housing minister, said the central government is working closely with authorities in Beijing, Shanghai, Shenzhen and Guangzhou to introduce measures to help rein in the market.
These include enforcing housing purchase restrictions, using differentiated tax and credit policies, and clamping down on any illegal trading to stabilise market sentiment, Chen said.
The government faces a difficult act balancing between its conflicting policy goals of spurring housing markets in smaller cities while attempting to cool things down in larger cities. Among the unintended consequences, credit appears to be leaking into the housing market in first tier cities, stoking up prices in what many believe is an already overheated market.
“It is obvious banks have a stronger incentive to give credit to a bullish housing market,” Du Jinsong, head of Asia property research at Credit Suisse said.
China’s continuous policy support to the housing sector since late 2014 has resulted in a U-turn in prices in major cities, led by Shenzhen and Shanghai.
Prices in Shenzhen jumped 53 per cent in February over the past 12 months, followed by Shanghai with a 15 per cent hike, according to real estate data provider China Index Academy.
Meanwhile, many smaller Chinese cities are glutted with excess supply, as official data shows 718 million square meters of unsold commercial housing space at the end of 2015, a 15.6 per cent increase on year.
Mainland media have reported that speculators using margin lending through agencies have a presence in Shanghai and Shenzhen’s housing markets.