MNI EXCLUSIVE: China Property Rules Aim At Slower Price Growth

China will limit lending to house buyers and property developers in cities where the cost of buying a home is increasing too rapidly, but officials are wary of causing sudden drops in prices and long-term plans to implement a widespread property tax remain a distant prospect at current levels of urbanisation, policy advisors told MNI.

Cracking down on speculation, authorities have told banks to tighten lending criteria and required home buyers to have social security records in localities where they intend to purchase. Loans used for real estate grew more slowly than total Chinese loans for the first time in 2020, Guo Shuqing, chairman of China Banking and Insurance Regulatory Commission, said last week, warning of the danger of allowing property market bubbles to develop.

But moves such as seen in Shenzhen, where authorities stepped in as prices jumped more than 34% in 2020, will remain uncommon as the government seeks to strike a balance between preventing excessive house price inflation and undermining the property market, said advisors including Yan Yuejin, director of E-house China Research and Development Institution. Falling prices would hit not only house buyers, but also local governments, which rely heavily on revenue from land sales.

"The central government doesn't want home prices to rise too quickly but on the other hand it does not want prices to fall," said Hu Gang, a planning advisor to Guangzhou municipal government and a professor with Jinan University, "which means home prices could rise a little bit annually."

PROPERTY TAXES

Another tool long discussed among advisors would be a more widespread tax on property. Two cities have been experimenting with levies on property since 2011. Shanghai taxes people who owned more than two homes with an average space of more than 60 square meters. In Chongqing, property tax is based on family living space.

However, neither model is mature enough to be introduced widely, advisors said.

The rates on the taxes are too low to meet the government's objective of making them a major source of local revenue, while setting them too high would undermine the market, according to Zhang Yiqun, director of a fiscal studies institute affiliated with Jilin province's finance department.

Widespread property taxes will probably not be viable until China's urbanisation rate rises to 75% from about 60% today, he said. In the new Five-Year Plan published last week, the government committed to increasing the ratio to 65% by 2025.

Prices for new houses in China's four tier-one cities, Beijing, Shanghai, Shenzhen, and Guangzhou, rose 3.9% in 2020, and smaller cities reported a 3.5% increase.

In Shenzhen, the new restrictions mean estate agencies are not allowed to publicly market houses with prices higher than the official reference.

Homeowners there told MNI the official prices are much lower than their expectations, with one complaining of losing two million yuan compared to the previous valuation of their property.