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March 3, 2016

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Government sweeteners entice homebuyers

YOUNG Shen, a white-collar worker in her mid-30s, signed a home purchase contract just before the weeklong Chinese New Year holiday last month. The timing was both intentional and fortuitous.

By sealing the sale when she did, Shen took advantage of a new central government policy cutting the deed tax. As a result, she and her husband saved more than 140,000 yuan (US$21,402).

“It was definitely good news for us, though it was not a significant savings considering the total cost of our apartment,” said Shen. “We really had to dig deep in our pockets for the down payment.”

Home for the couple will be a three-bedroom apartment on Gudai Road in the Minhang District, which cost 10.5 million yuan, including taxes and fees. The couple had been scouring the property market for months to find a home they liked and could afford.

The central government is trying to encourage people, especially in smaller cities, to buy homes amid a slumping property market that threatens to slow an already sluggish economy.

On February 19, the Ministry of Finance, the State Administration of Taxation and the Ministry of Housing and Urban-Rural Development jointly cut the deed tax in the gateway cities of Shanghai, Beijing, Guangzhou and Shenzhen, as well as in some smaller cities, to 1 percent if the home purchase is no larger than 90 square meters and to 1.5 percent on bigger homes. To qualify for the preferential rate, the house must be the only property owned by the household.

Prior to that, deed tax rates in Shanghai ranged up to 3 percent, depending on size, location and price, and on the number of homes a family owned in the city.

In Shen’s case, her new apartment, which is a bit bigger than 180 square meters, would have drawn a 3 percent deed tax rate. That was halved by the new policy.

“The reduction will benefit most houses in the medium- to high-end segment of the market,” said Lu Wenxi, a senior manager of research at Shanghai Centaline Property Consultants Ltd. “However, we don’t really expect to see a big boost in transactions — perhaps 5 percent at most. The saved amount is not significant enough to trigger buyer interest if you look at the overall prices they have to pay.”

For buyers in lower-tier cities, where inventories remain at high levels and demand remains sluggish, even more favorable policies have been introduced. Effective February 22, buyers in all Chinese cities except the four gateway metropolises are also eligible for a 1 percent deed tax rate on purchases of a second home no larger than 90 square meters, or a 2 percent rate if the second house is larger. The business tax also will be waived if the property is owned for two years or longer, the government said.

“These initiatives, combined with the previous policy cutting down payments, may possibly have an effect, especially in smaller cities,” Lu said. “Buyer interest might be somewhat triggered in the short haul.”

In early February, the People’s Bank of China cut the minimum deposit for first-time homebuyers to 20 percent from 25 percent, and for second-home buyers, to 30 percent from 40 percent. The reductions don’t apply in cities with curbs on home purchases, which are Beijing, Shanghai, Guangzhou, Shenzhen and Sanya.

Reduce the inventory

The easing of down-payment rules is aimed at further supporting “reasonable housing consumption and promoting the stable development of the property market,” according to the central bank. It was the fourth time since October 2014 that the government has stepped in to try to energize the flagging real estate market in smaller cities in China.

China’s property sector began its downturn that year as high prices and weak demand fueled an oversupply of housing.

Chinese authorities have said one priority this year will be reducing the inventory of unsold homes in the country, amid concerns that poor property sales will further hurt an economy already growing at its slowest pace in a quarter of a century.

James Macdonald, head of research for Savills China, said he expects more government incentives this year because recent reductions in taxes and down payments won’t provide enough of a boost.

“While the new policies may benefit some second-tier cities, there are bigger issues to deal with in relation to lower-tier cities,” he said. “Demand fundamentals, including job creation and hukou (residency permit) requirements need reforms before we see a true market recovery.”

Among potential further policy changes are interest rate cuts, acceleration of granting residency permits to migrant workers and offsetting income tax against mortgage payments, Macdonald added.

Even as home prices climb, there are signs of a pickup in buyer interest, fueled perhaps by fears that waiting will mean even higher prices.

When 352 units costing an average 10 million yuan each were released to the market in a downtown Hongkou District project developed by Shui On Land, 3.6 billion yuan in sales were reported on the first day. The February 21 sale came two days after the new government policies were announced.

The mean price of these apartments was about 80,000 yuan per square meter, a double-digit increase from October, when the last batch of apartments in the same development was put on the market.

“Home prices in Shanghai are crazy,” Shen said. “The reason we decided to enter the market is not because we think prices are reasonable, but rather because we fear that if we don’t secure ourselves a home now, it will just cost us more in the future.”

National Bureau of Statistics data seem to confirm that fear. Prices in the four gateway metropolises in January continued to lead nationwide gains, according to the bureau’s monthly tracking of home prices in 70 cities.

Nationwide, Shenzhen prices rose 4.1 percent, followed by Shanghai with a 2.6 percent monthly gain. In Beijing and Guangzhou, new home prices climbed 1.1 percent and 0.8 percent, respectively.

On average, home prices in first-tier cities accelerated 0.5 percentage point in the new home market and 1.2 percentage points in the existing market, the bureau said. That compared with a 0.1 percentage point rise for both markets in second-tier cities, according to the data.




 

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