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Shanghai unveils tightening policy for home market

By Cherry Cao | March 25, 2016, Friday | Online Edition

SHANGHAI unveiled today a batch of tightening measures in its latest bid to cool the city's overheated housing market as rapidly surging home prices are posing threat to the stability and healthy development of the market.

Effective today, buyers of second homes are required to pay a minimum 70 percent down payment if the property is defined as a "non-normal" home, or a minimum 50 percent down payment if the house is a "normal" one. That compared to the previous requirement of a minimum 40 percent deposit.

In Shanghai, normal homes are those no larger than 140 square meters and priced at less than 4.5 million yuan (US$691,000) within the Inner Ring Road, or below 3.1 million yuan if between the Inner and Outer Ring roads, or below 2.3 million yuan if beyond the Outer Ring Road.

In addition, non-local residents will only be qualified to purchase a house if they could provide tax or social insurance certificates to verify their length of stay in the city exceeded five consecutive years. Previously, they would be entitled to a home buying right if they could verify their length of stay in the city exceeded 24 accumulated months over three years as required by the government.

"Home prices in Shanghai have been rising at a notably faster pace since the second half of last year with some irrational sentiment becoming prevalent among buyers in some areas," said Gu Jinshan, chief of the city's housing management commission. "Abundant liquidity and preferential credit and tax policies, a capital shift from the stock market and smaller-tier cities to property markets in gateway metropolises, continuously robust housing demand from local residents and tight home inventories are some of the major reasons behind the soaring prices."

Irregularities involving real estate developers, property agencies and some financial institutions such as providing loans raised in the gray market for down payments also helped foster investment and speculation momentum in the market, Gu said.

"It is time to cool off the market and the latest series of tightening measures, expected to leave quite significant impact on the local property market, is a good signal because an overheated market will create huge bubbles," said Joe Zhou, head of research for China operation at Jones Lang LaSalle, an international real estate services provider.

The new policies will probably reduce transaction volume in a short period of time while housing prices in Shanghai are not likely to suffer a notable drop concerning Shanghai's status of the financial hub of China, according to JLL.

As part of the government's latest endeavors to ensure a stable and healthy property market, the city also pledges to step up its efforts aimed to further regulate the market which include better supervision and oversight of real estate practices and financing and a prioritization of the development of small- to medium-sized units. The city will also establish a mechanism in which official information and data pertinent to the property market such as land supply, home inventory and average housing prices will be released on a regular basis.

The National Bureau of Statistics earlier released data that showed house prices in China rising at their fastest pace in almost two years in February amid bullish demand in first-tier and a selected number of second-tier cities.

In Shanghai, new home prices rose 2.9 percent last month from January, closely trailing Shenzhen where average cost of new homes climbed 3.9 percent month on month, the fastest increase in the 70 cities tracked by the bureau. In the existing home market, prices rose 5.3 percent from a month earlier, also the second-highest growth among the 70 cities.

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