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China Cities May Tighten Property Curbs as Slowdown Lifts Target

China Cities May Tighten Property Curbs as Slowdown Lifts Target

Chinese cities seeking to cap home-price gains below income growth may need to tighten property curbs as the nation’s slowing economic expansion makes their targets more difficult to meet. Hangzhou, the capital city of the eastern province of Zhejiang, will tighten approvals of pre-sale permits in the second half and may raise down payments for second homes to make sure its price-control target is met, according to a July 27 report by Today Morning Express, a Chinese-language newspaper affiliated with the provincial government.China’s economy slowed for a second quarter as the pace of factory output weakened, adding to risks that the government will miss its expansion target and cutting income growth excluding inflation to 6.5 percent in the first half, from 9.7 percent a year earlier. That leaves less room for the 35 provincial-level cities that have set annual home-price targets this year, mostly capping increases at local income growth.

“The home-price problem facing the Hangzhou government in the second half isn’t an isolated case, and therefore we expect more second- and third-tier cities to tighten price controls,” Luo Yu, a Shanghai-based analyst at advisory firm CEBM Group, wrote in an e-mailed report. “The use of administrative measures such as pre-sale permits and price registration will have a negative impact on housing supply and sales.”

Permits Rejected

The bigger, first-tier cities such as Beijing, Shenzhen and Guangzhou, where home-price gains have been among the biggest this year, have already been rejecting pre-sale permits for projects whose target selling prices are deemed too high by local officials. Guangzhou plans to cap land prices at 145 percent of the auction’s starting price, Xinhua News Agency reported July 26, citing local draft rules.

Home prices in Guangzhou led gains among 70 cities the government tracks, with an increase of 16 percent last month from a year earlier, the biggest for the city since the methodology changed in 2011. Prices in Hangzhou rose 7.1 percent, according to data from the National Bureau of Statistics.

Hangzhou’s new-home price gains last month were “very close” to its urban income growth, the newspaper report said, citing a municipal government meeting analyzing half-year economic conditions. Income by the city’s urban residents increased by 6.5 percent in the first half, compared to last year’s 7.4 percent, according to its statistics bureau.

There was no immediate reply to a fax sent to Hangzhou’s housing bureau’s press office seeking comment on the report.

Cities including Hangzhou, Xuzhou and Hefei have tightened lending by local housing providence centers, set up by the government and funded by residents and their employers, after strong home sales this year strained their resources, the China Business News reported yesterday without citing anyone.

China’s housing sales in the first six months jumped 46 percent from a year earlier as the property market recovered after the central bank cut interest rates last year to stem an economic slowdown.

–Zhang Dingmin. With assistance from Bonnie Cao in Shanghai. Editors: Andreea Papuc, Iain McDonald

To contact the Bloomberg News staff on this story: Zhang Dingmin in Beijing at dzhang14@bloomberg.net

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Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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