And so it begins – but it’s not that bad. China’s State Council, or cabinet, has issued the first of an anxiously awaited series of possible austerity measures aimed at blowing the froth from the property market before real bubbles appear. Anxious that is, because there are several options available to Beijing to cool a housing market that has seen October prices rise 3.9% year-on-year, and much depends on the government’s ability to maintain a steady equilibrium.
Speculation has been mounting for some time as to how the authorities would address the bubble issue. So what have they done this time? Starting from next year, a tax on homes sold within two years of initial purchase will be extended to five – a total u-turn on January’s decision to reduce the period to two years from five.
The original thinking behind the shorter holding period on a property was to entice would-be home buyers back to market and part of a wider move to prop up a sector pivotal to the health of the overall economy. The five-year holding period was first introduced to prevent speculators sitting on a property and flipping it for a quick profit and so aiding price escalation.
The State Council’s announcement underlines the ongoing theme of supporting end-user demand and is in line with previous buttressing policies. It is highly unlikely that the government will make any rash move to throw the market.
Should signs emerge that real estate prices are indeed beginning to shift out of control (creating a joyous chorus of ‘told you so’ from some commentators), there are still a couple of cards to play without completely pulling the plug.
With the required penalty-free holding period having been extended, an increase in deeds tax could take a little steam from the market. Stiffer implementation of mortgage rules might also play a role. Local media reports show that regionally some banks are already making it more difficult to obtain a mortgage on a second home, even with a 40% downpayment and 10% premium on rates. However, in light of the government’s desire to boost overall consumption and support end-user housing demand, the 30% downpayment for first-home buyers is likely to stay.
What ever announcement that comes next from Beijing regarding the property market should not come as any shock or surprise, but you can expect some fancy headlines claiming the end is nigh. This is not what the government wants nor what the economy needs. After previous experiences of stop-start housing policy, officials know that the market may need to be cooled, but not frozen altogether.