In the market for a luxury home? Don’t look for one in Beijing. At the beginning of the month, the capital city’s construction committee made illegal the sale of any home priced at higher than US$6,560 per square meter. Anyone there willing to put down a pile of cash for a three-story villa with a garden and koi pond will have to wait until the municipal government once again changes its policy on how real estate is bought and sold.
In late October, Beijing started once again tightening its control over residential home sales, the continuation of a near-four-year campaign to use policy measures to slow housing prices nationwide. The city allows residents to own no more than two homes and last month the government threatened to seize flats from those in excess, with the hope of dampening speculation.
After nearly seven months without a big policy reaction to rapid year-on-year growth in housing prices, governments in Xiamen, Nanchang and Nanjing on Tuesday followed Beijing’s lead, raising minimum down payments for second homes.
Only the speculation on new government housing controls can match that in China’s property sector. Average year-on-year residential prices recorded in 70 major cities in October climbed the most in 34 months. In the southern metropolis of Guangzhou, the average price of a home rose by 21% compared to the year before. In September, the national average rocketed to a 36-month high.
Yet analysts have also pointed out that those annualized figures come off a low base, meaning that growth was much lower in the same period last year. Month-on-month, housing prices across China have been slowing since April, leading many experts to predict a lighter policy hand on the market.
The dizzyingly high cost of flats in Guangzhou in October were just 0.09% higher than the month before, slowing from monthly price growth of 0.13% between August and September.
But not all apartments are created equally. While month-on-month growth for average prices is slowing, the price of luxury homes in Beijing is climbing – rapidly. Homebuyers looking for terraces and private garages in the third quarter of the year would have paid on average 8.6% more than in the second quarter, according to data from international property manager CBRE.
By contrast, prices for luxury real estate rose about 3% quarter-on-quarter in January-March.
The difference is a pretty penny. A bargain hunter who bought a 300 square-meter home at US$6,500 per square meter in May would have paid US$17,000 less than someone taking the same place just a few months later. It’s the scenario speculative investors drool over.
No wonder the Beijing municipal government stepped in and made these skyrocketing transactions illegal early this month. And it wasn’t just prices that were on fire. Supply of luxury housing in the capital actually surged by 50% between the second and third quarters of 2013, according to data from Knight Frank. Sales were also up 35%.
Beijing’s ban on sales will likely collide hard with that sudden jump in supply. “The luxury market will probably see a downturn,” said Gao Yi, the marketing director at Beijing-based real estate firm Yahao. It’s unclear for how long city technocrats will suppress the market.
That doesn’t appear to be a major concern for buyer and sellers, though. There’s a saying in the real estate market: “No developer in China worries about selling luxury housing.” Property firms find ways around the controls; according to Chinese media reports, people from Hong Kong and Taiwan, who can legally buy houses in the city, have figured out how to skirt the most recent restriction.
Still, it’s quick and drastic policy changes such as this that leave developers, investors – and those actually seeking a homestead – pondering what comes next. Since March, the central government has implicitly allowed local officials to tune their property markets as they see fit. Policy controls in Wenzhou have been all but dropped after extreme oversupply made the coastal city the only major spot in the country where prices are actually slowing year-on-year.
This means new restrictions will be sporadic, much like those issued on Tuesday in Xiamen, Nanjing and Nanchang. It may become increasingly difficult to predict when and where policy controls will be rolled out. Property developers will listen for fresh hints at the Central Economic Work Conference to be held in December, and then the National People’s Congress in March, Gao at Yahao added.
Minimal new policy controls can be expected if monthly growth continues to decelerate. That’s because, if the slowdown persists until April, price gains would begin to decelerate year-on-year – a comfort zone of sorts for officials fretting about property bubbles and sky high, out-of-control prices.