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13/08/2010 - Key changes in China's real estate policies  13/08/2010 - Key changes in China's real estate policies

The China Banking Regulatory Commission has ordered lenders to carry out a series of stress tests on their businesses.

The tests follow the prediction of a fall in house prices as previous measures to cool the market start to take hold.

Numerous policy changes over the last three years have affected buyers, real estate agents, foreign investment and businesses reliant on China’s real estate sector.

Key policies introduced between 2007 and 2009 to curb sharp price rises included:

i)    The central bank increased the amount lenders must hold in reserve by a full percentage point.

ii)    Land from local governments which remains undeveloped for more than a year is subject to an ‘idle charge’ of twenty percent of the purchase price.

iii)    The Central Bank and the China Banking Regulatory Commission ban banks from lending to developers who are found to be hoarding land.

iv)    China bans foreign investors from borrowing offshore when buying real estate.

v)    The Commerce Ministry issues land usage rights before developing, making it harder for foreigners to invest in property.

vi)    Increases in taxes to discourage sales of large homes.

vii)    Taxing the appreciation of property based on actual market prices.

However, a subsequent sharp U-turn in the second half of 2008 followed on a number of key policies.

These were:

i)    Introduction of tax cuts to businesses regarding real estate sales with policies for developers to obtain credit easily.

ii)    A $585 billion USD two year stimulus package, a tenth of which is to be used for construction of affordable housing.

iii)    Lower mortgage rates with reduced down payments and lower transaction fees.

iv)    Cuts in housing mortgage rates to keep in line with interest rates.

v)    Cash subsidies for local governments to support local property markets.

This year China has again updated its policies in order to curb property price increases.

The following policies came into effect this year:

i)    A stop on extending mortgages in key cities such as, Beijing, Shanghai, Shenzhen and Hangzhou.

ii)    An increase on the minimum down payments on second homes from forty percent to fifty percent.  Banks must charge a minimum mortgage rate of 1.1 times the benchmark interest rate on second homes.

iii)    Minimum mortgage down payments on first homes over 90 square metres increased from twenty percent to thirty percent.

iv)    Companies whose core business is not real estate must submit plans to divest from the sector within fifteen days.

v)    Individuals must own their own homes for up to five years to be eligible for sales tax exemption.

vi)    Restrictions on land usage rights for foreign investors in order to discourage foreign investment.

vii)    Increase in taxes to discourage sales of large homes and taxing the capital appreciation of property based on actual market prices.

For sure, there will be more changes to come in the future - watch this space.

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