The Chinese government is taking steps to cool down a rapidly growing housing bubble that had grown dramatically last year. The government has implemented new property taxes and restrictions on home purchases since the cooling measures began last April. See the following article from Global Property Guide for more on this.
House price increases in China have moderated somewhat, confirming the effectiveness of government market-cooling measures. New residential building sales prices in 70 key cities rose 7.6% y-o-y to December 2010, according to the National Bureau of Statistics of China (NSBC), well down from the peak y-o-y 15.4% price rise in April.
Beijing’s price increases were higher, although by December the y-o-y price increase had eased to 9.9%, according to NSBC, down from an average y-o-y price increase for 2010 of 18%.
Shanghai’s price increases, on the other hand, dramatically moderated to 1.3% during the year to December, from 12% y-o-y to April. Shanghai’s e-homeday second-hand house price index confirmed the trend, rising only 1.9% y-o-y to December 2010, the lowest rise since July 2009.
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Measures approved in January 2011 to cool China’s housing market:
• Higher down payments for second homes (from 50% to 60%)
• More areas where home purchases are limited.
• The government is also testing new property taxes in Shanghai and Chongqing, in southwestern China.
The property tax rate in Shanghai is set between 0.4% and 0.6%. Chongqing, one of the five national cities (Beijing, Shanghai, Guangzhou and Tianjin), will impose a tax ranging from 0.5% to 1.2%, on luxury homes and newly purchased high-end homes. To quell property speculation, Chongqing will also impose a special tax on second home purchases by people with no business or employment interest in the city.
The introduction of cooling measures began in April 2010, when the government raised real estate transaction taxes, increased minimum down payments, and hiked mortgage interest rate margins.
Analysts nevertheless question the effectiveness of these regulations. With economic prospects in the US and Europe dull, global investments are heading to China. Chinese companies are raking in huge profits from exports. All this money has to go somewhere; a huge chunk is being spent on housing.
Cracking down on speculators is not easy. China’s corruption-ridden bureaucracy is incapable of prosecuting investors with strong links to the Communist Party. New regulations simply make speculators move to other areas, shift to another industry, or increase their bribes to regulators.
This article was republished with permission by Global Property Guide.