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Print Edition> Business
UPDATED: August 1, 2011 NO. 31 AUGUST 4, 2011
Tightening Home Purchase Limits
More Chinese cities will limit home purchase to cool the red-hot real estate market

OWNING A HOME: Wang Lijuan and Cai Longqing, a low-income couple in Xiamen, Fujian Province, look at the new apartment they will soon live in. The housing community will provide homes for 334 low-income families (ZHANG GUOJUN)

Figures of prices of newly built commercial houses released by Centaline Property Agency Ltd. show, in the first half of this year, house prices in cities that implemented home purchase limits rose by an average of 4.04 percent year on year, while in cities without the limit, the figure was 4.89 percent.

As house prices increase, the sales volume of the real estate market is also growing rapidly. According to the NBS figures, in the first half of 2011, among the country's 70 large and medium-sized cities, 440 million square meters of commercial houses were sold, up 12.9 percent year on year

Chen Sheng, Deputy Director of China Index Academy, said one of the reasons for the rapid increase of house prices in second- and third-tier cities is that after first-tier cities began to place limits on home purchases, speculators moved their operations to second- and third-tier cities.

"If the government allows house prices in second- and third-tier cities to rise violently and then transmit to other regions, it would have a negative impact on the overall control of the real estate market," Chen said.

Besides the purchase limits, the Central Government is also strengthening efforts to build housing projects for low-income residents to balance the supply and demand of the real estate market and curb house prices.

The State Council meeting on July 12 said by the end of June, 5 million flats for low-income residents were under construction, more than 50 percent this year's goal. Of this total, 4 million apartments are expected to be completed by the end of 2011. The meeting also said that construction on all 10 million apartments for low-income residents must start before the end of November.

Questionable results

"Now it is unclear how the policy of these limits will be implemented in second- and third-tier cities," said Zhu Zhongyi, Vice Chairman of China Real Estate Association. "But I think the Ministry of Housing and Urban-Rural Development and related ministries will discuss detailed measures with the local governments where house prices have increased rapidly. And in the future, different cities may adopt different measures of home purchase limits."

Real estate developers of different sizes may face different fates from the policy.

Fan Xiaochong, Vice President of Sunshine 100 Real Estate Group, one of the country's largest real estate developers, said once the policy is extended to second- and third-tier cities, small and medium-sized real estate companies will find "houses are unsalable or even on the houses that are sold, the mortgage loans cannot be approved by the banks."

Fan said small and medium-sized real estate companies may not close down in the short term, but they will be the target of mergers and acquisitions by large-scale developers.

Mao Daqing, General Manager of the Beijing Branch of China Vanke Co. Ltd., another large-scale real estate developer, said if the policy is extended to some second- and third-tier cities where there are Vanke projects, the group won't consider lowering prices. "We will fix the prices in accordance with market conditions," Mao said.

That reflects a difference between large-scale estate developers and small-scale ones: Large developers can withstand the home purchase limit policy with their land reserves and large housing projects, but smaller companies will be helpless due to their lack of land and capital.

Ye Tan, a financial commentator, said at present there is an opinion the real estate market has reached a turning point and controls will be relaxed. But the State Council meeting said the real estate market still faces pressure from price hikes. Relaxing measures now will only result in rebounding house prices. So for the time being, Ye said, the control will continue.

She said there are many ways of controlling the real estate market, of which the home purchase limit is an important one. The policy has been largely successful, especially in cities like Beijing. But after first-tier cities started to limit home purchase, house prices in the nearby second- and third-tier cities have increased, and in cities along high-speed railways, house prices are also rising.

"What I will emphasize is that home purchase limit should be a temporary measure, not a long-term one, because this is an administrative measure and can have serious side effects," Ye said.

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