New measures to curb property market are a short-term solution
May 13, 2010 | BY
clpstaff &clp articles &Cooling off the pricing heat
Some counsel believe that the Chinese government's latest measures for curbing surging property prices are too temporary and short-term.
On April 17, the State Council issued the Circular on Determined Suppression of the Exceedingly Rapid Rise of Certain Urban Housing Prices (国务院关于坚决遏制部分城市房价过快上涨的通知).
“Since we have chosen a market economy, too much short-term policy interference will harm the market's confidence,” said Lei Meng, a partner at Guantao Law Firm and a counsel to the Beijing Municipal Commission of Housing and Urban-Rural Development.
He said the government should provide more low-cost housing instead of imposing harsh measures in reaction to fear of an asset bubble growth.
“Property investors are mingled with a fair portion of buyers who are looking to realise their basic housing needs,” Meng commented. “If there was a greater low-cost housing supply, those buyers would naturally move away from the commercial property market.”
He admitted it would take time, but strongly believed it would be healthier for the market in the long-run.
The new Circular rolled out a series of new policies to crack down on speculative activities in the real estate market. The measures raise the minimum down payment for second home purchases to 50% with higher mortgage rates, whereas before it was 40%.
For third property purchases, banks have been instructed by the State Council to tighten lending to reduce mortgages. Buyers purchasing their first property must pay a minimum 30% deposit if the flat is bigger than 90 square metres (970 square feet ).
Under the new rules, non-local Chinese residents are no longer able to obtain mortgages unless they are able to prove that they have lived and paid taxes for at least one year in the city they intend to buy property. “Especially for these residents who have not met the mortgage criteria, they are very anxious because they are unable to buy property for their basic housing needs,” said Meng.
The effect of these tough new measures was apparent immediately.
There was a wave of breach of property sales contracts in Beijing. Buyers who already had signed the purchase contract and paid a subscription fee chose to abandon the pre-paid sum rather than follow through with the purchase. Many did so to either avoid the hefty new sums required for down payments and high mortgage rates, or because they simply could not afford it anymore. Meng estimated that only two out of ten buyers would complete their purchase, a drop-off of 80%.
“On the whole, buyers are now adopting a 'wait and see' attitude towards the property market,” he said
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