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Cover Stories Series 2012> Controlling Housing Prices> Archive
UPDATED: May 28, 2012 NO. 22 MAY 31, 2012
The Ongoing Housing Dilemma
Relaxation measures put housing control policies to the test
By Lan Xinzhen

The situation in Yangzhou provides the latest test for the government's property market policies.

People holding Shanghai resident cards for more than three years are eligible to buy a second home despite their non-permanent residence status, said the Shanghai Municipal Housing Security and Administration Bureau on February 25 this year.

On February 9, Wuhu in Anhui Province released a housing policy, offering subsidies to first-home buyers. In October 2011, Foshan in Guangdong Province said it would allow residents to buy a second home.

Although these attempts were scrapped only days after they came out, the mild easing policies by local governments have been read by some as a way of testing the efficacy of policy loosening.

The sluggish property market withheld developers' attempt to purchase new land, creating funding issues for some local governments since land sales used to account for a large part of local government revenues. In this context, local governments may urge the Central Government to ease its grip on the real estate sector.

The real estate sector is related to many other industries, and the tightening policies have affected the development of those industries and even the growth of local GDP, said Yi Xianrong, a researcher with the Institute of Finance of the Chinese Academy of Social Sciences.

"The slowdown in local GDP growth forced local governments to seek ways to ease the property market," Yi said.

The Central Government's position is not likely to change in the short term, but there will be space for local governments to gradually ease their property policies, according to some analysts.

Still constricted

The easing policy in Yangzhou rapidly created widespread media commentary about whether it would come into conflict with the Central Government's real estate restrictions.

In response, the Yangzhou Housing Management Bureau released an explanation, claiming that the policy was drafted on the basis of a document that said by 2015, 40 percent of the new housing around the city should be refined decoration houses.

To achieve this goal, Yangzhou has introduced a policy to encourage buyers, said Sun Wei, Deputy Director of Yangzhou Housing Management Bureau.

Sun said Yangzhou will follow the Central Government's policy to restrict sales of residential properties, but the city has no plan to revoke the policy to encourage and reward individuals who purchase refined decorated houses.

Previous cases in which the Central Government ordered the cities of Foshan and Wuhu to scrap their easing measures were indicators to many as insistence on tightening control. Real estate developers and local government officials are closely monitoring what actions the Central Government may take concerning what was seen by many as new relaxation measures implemented in Yangzhou.

Zhang Dawei, chief supervisor and researcher at Centaline Property Agency in Beijing, said offering tax incentives to apartment buyers is a measure aimed at assisting the realty industry to boost revenues.

"Yangzhou's easing policy is applicable to all home buyers, whether they are residents or not. This is the best the local government can do. The implication of the new policy will have a profound impact on market expectation and fuel speculation that enforcement of the Central Government's policy on market controls is unlikely to become tighter as long as the Central Government leaves the Yangzhou Government alone," said Zhang.

Wan Zhi, an analyst at Everbright Securities, believes Yangzhou's new policy shows that local governments are keener to save their local property market than before and local government initiatives to ease property market restrictions are set to proliferate in the future.

Chen Baocun, Deputy Secretary General of the National Real Estate Manager Alliance, said that the sluggish housing market needs a boost.

"We should encourage reasonable housing consumption and development of commercial houses. This is in accordance with the country's goal of promoting the industrialization of the housing sector," said Chen.

According to Liu Yuanchun, deputy head of the School of Economics at Renmin University, two reasons exist behind Yangzhou City Government's boosting efforts.

First, the local government, whose finances rely heavily on land sales, faced mounting pressures from fiscal revenue decreases and made efforts to boost the housing sector. Second, the overall slowdown in local economic growth was a result of the slackened housing sector. Local administrations are eager to provide assistance to property developers in their respective regions to shore up business activity.

"The housing market has not seen a drastic price slump, while the decrease in housing sales heaped huge financial pressures on the local government. China's housing-control policy is at a critical moment," said Liu.

Email us at: lanxinzhen@bjreview.com

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