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Buying a home gets easier, controls are relaxed
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China has eased restrictions on purchase of property by overseas institutions and individuals, as it incrementally rolls back administrative measures imposed to curb rampant property speculation.
The relaxation affects offshore institutions with offices in China and foreign individuals working or studying in the country. They will now be allowed to buy property for their own use, subject only to general limits that also apply to Chinese buyers.
“The policy adjustment indicates that the government is moving away from intervention in the real estate market, which is certainly a positive gesture,” said Joe Zhou, head of research for China operation at Jones Lang LaSalle, an international real estate services provider.
“However,” he added, “we don’t expect that to have any major impact on the market because overseas buyers account for a really small proportion of property sales. Prices in China have soared in the past decade, making properties here less attractive to overseas buyers.”
The easing of restrictions was announced jointly in mid-August by the Ministry of Commerce, the Ministry of Housing and Urban-Rural Development, the National Development and Reform Commission, the People’s Bank of China, the State Administration for Industry and Commerce and the State Administration of Foreign Exchange.
In 2006, the government stipulated that would-be property buyers had to have lived in China for at least a year. Four years later, the restriction was tightened. Foreign individuals were limited to buying only one residence and overseas institutions were limited to purchasing only non-residential properties for business operational purposes in the city where they were registered.
Still, overseas individuals will continue to be included in home purchase restrictions that remain in effect in Shanghai and other cities. Those restrictions apply to the number of apartments an individual can buy.
As the government slowly withdraws its heavy hand from the real estate industry, market forces come to the fore. High home prices present a buying obstacle in their own right.
In Shanghai, the average cost of a new apartment last year rose to 3.24 million yuan (US$506,000) from 1.33 million yuan in 2007, according to Shanghai Homelink Real Estate Agency Co.
“Things have changed a lot over the past 10 years,” said Lu Qilin, director of research at Homelink. “For a long time, overseas buyers have stopped flocking to first-tier cities to purchase real estate for investment purposes. In fact, overseas property sellers have outnumbered property buyers in Shanghai in the last few years.”
In the first seven months of this year, overseas individuals accounted for about 0.5 percent of buyers of existing homes in Shanghai, while overseas sellers accounted for about 1.3 percent of sellers, according to Homelink.
Separate data from Shanghai Centaline Properties, another leading realty brokerage chain in the city, show that fewer than 2 percent of property transactions completed in Shanghai in the past few years involved overseas individuals.
Prior to the property bubble, many foreigners sought to buy real estate in Shanghai, drawn by the city’s cosmopolitan attractions and its relatively inexpensive property.
After a slowdown engineered by government restrictions, prices are once again on the rise.
In July, the mean selling price of new residential properties in Shanghai, excluding government-subsidized housing, hit a record 34,639 yuan per square meter. That was largely due to a buying shift toward higher-cost units, according to Shanghai Uwin Real Estate Information Services Co.
In the luxury segment, which usually refers to properties costing at least 50,000 yuan per square meter, sales in July fell just 3 percent from June’s all-time high, with the mean selling price hovering at 71,018 yuan per square meter, according to Homelink.
In the “ultra-luxury” category — properties costing more than 100,000 yuan per square meter — three of 54 signed contracts involved villas priced at more than 100 million yuan each.
“Overseas buyers usually look for high-end properties in prime locations in first-tier cities such as Shanghai, which often cost at least 10 million yuan per unit nowadays,” said Jones Lang Lasalle’s Zhou.
“That is not cheap at all when compared to housing prices in major cities around the world.”
Prices move markets, and now the over-arching shift is overseas.
Sky-high home prices in China, a softer domestic economy and fears that the yuan may weaken further are pushing Chinese buyers to seek property abroad.
Overseas real estate investment surged from US$600 million in 2009 to an estimated US$15 billion in 2014, with the majority of that money going into major cities in the US, UK and Australia, according to international property advisor Knight Frank. The firm forecasts that investment will rise to between US$20 billion and US$30 billion this year.
Will the Chinese government’s relaxation of restrictions on property purchases help restore some balance to the market?
“It seems the government is going to revoke more restrictive policies in the property segment to allow the market to adjust itself,” said Lu Wenxi, senior manager of research at Shanghai Centaline. “From that perspective, we do expect restrictions to be lifted all around the country in the not too distant future.”
Chester Zhang, associate director at Savills China Research, applauded the loosening.
“The removal of these restrictions is overdue and this is the best time to remove them, when the market remains relatively soft and relaxation isn’t likely to result in a large influx of hot money,” he said.
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