China’s will next month increase down-payments on home loans and broaden the capital gains tax, moves analysts said on Tuesday should help cool the overheated real estate sector in the short term.
A statement posted on the central government’s website said the down-payment on homes above 90 square metres would be raised to 30% from 20%, as authorities target the high-end of the property market.
“To control the overly fast rise in property prices, from the first of June this year, the down-payments on personal home mortgages must not be lower than 30%,” the government said on www.gov.cn late on Monday.
From June 1, the sale price of homes sold within five years of purchase will be taxed at 5,5%, extending the timeframe from two years.
After five years, the 5,5% tax rate will only apply to the capital gains on the property. Again, the capital gains tax had previously applied to the sale of properties within two years.
China will also introduce tougher criteria for lending to property developers, requiring them to fund at least 35% of their projects from their own capital or else forgo all bank financing, the statement said.
The new regulations are aimed at forcing builders to construct more affordable housing for the average citizen while controlling speculative investment, analysts said.
“The policy is aimed at adjusting the supply structure,” said Zhao Qiang, a real estate analyst with Everbright Securities in Shanghai.
“Developers will now focus more on building lower-class housing even though they will yield less profits.
“For investors it will be harder for them to sell the property they already bought.” But Ha Jimin, chief economist with China International Capital Corporation in Hong Kong, said that while laying out more specific measures was an improvement over past policies, the adjustments may not be strict enough.
“I think it will work this time, at least in the short term but a 5,5% tax is not a big deal for speculative investors. For example, if the property price rises 100%, the 5,5% [capital gains tax] doesn’t mean anything.”
Nevetherless, the new orders are part of wider government measures that reflect the increasing concern that a speculative property bubble needs to be brought under control before it bursts.
Such a crash would cause losses of billions of dollars and add to the Chinese banks’ debt-ridden portfolio of bad assets.
In response to the overheating, China’s central bank on April 28 raised interest rates for the first time in 18 months when it hiked the one-year benchmark lending rate by 27 basis points to 5,85%.
The China Banking Regulatory Commission also last week proposed stricter controls of new loans, curbing financing to property developers and stemming the granting of credit lines to local governments.
Reducing banks’ non-performing loans and optimising the lending structure, while increasing credit to small- and medium-sized enterprises, were also called for.
Premier Wen Jiabao made a similar statement two weeks ago, calling on regulators to use tax, credit and land polices to bring high city property prices under control to address the “imbalanced” structure of the real estate sector.
In another measure, a number of key state agencies last month ordered commercial banks to curb credit lines to local governments, warning that they could translate into higher and unsustainable rates of fixed-asset investment. – AFP