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Local governments "fine-tune" policies to ensure "rigid demand" enters the market
2019-11-26
Although the so-called "strictest ever" real estate control policy has been in effect for two years and its effects have become fully apparent, with prices stabilizing or declining and a clear downward trend in transaction volumes, the stringent control measures have also suppressed some rigid demand. As a result, local governments have begun to implement "fine-tuning" measures to encourage rigid demand.
Although the so-called "strictest ever" real estate control policy has been implemented for two years and its effects have fully emerged, with prices stabilizing or falling and transaction volumes clearly declining, many rigid demands have been somewhat suppressed due to the stringent control policies. Local governments have also begun to "fine-tune" policies to encourage rigid demand.
Since the end of last year, the idea of "taking effective measures to increase the supply of ordinary commercial housing" has been repeatedly mentioned. However, with the deepening of regulation, the growth rate of real estate investment has significantly slowed, and some regions have even experienced "negative growth" so far. To cope with the slowdown in real estate starts, local governments have taken measures such as increasing the housing provident fund loan limits and raising the standards for ordinary residential recognition, protecting rigid demand through taxes, fees, and credit means.
Relaxation of housing provident fund loan limits
At the end of 2011, tight bank credit limits caused first-home mortgage rates in many cities to rise by 10% or more. This situation eased at the beginning of this year, and from February, some cities began offering preferential rates for first-home loans. If the rise or discount in first-home mortgage rates is related to credit limits and not influenced by local government policies, then the relaxation of housing provident fund loan limits is a major local government measure to protect rigid demand.
In September last year, Changzhou led the way among second- and third-tier cities in raising housing provident fund loan limits. Changzhou adjusted the loan limit scheme, raising the maximum family loan limit from 400,000 yuan to 500,000 yuan, and the maximum individual loan limit from 240,000 yuan to 300,000 yuan. Nanjing and Jilin City followed suit, and in December, Hefei became the last city in 2011 to revise housing provident fund loan limits, raising the maximum family loan limit from 350,000 yuan to 450,000 yuan, and the maximum individual loan limit from 250,000 yuan to 350,000 yuan.
Since February this year, multiple second- and third-tier cities including Shenyang, Xiamen, Jinan, Binzhou, Karamay, Bengbu, Xinyang, Hohhot, and Nanchang have successively adjusted housing provident fund loan limits, increasing loan limits by amounts ranging from 50,000 to 200,000 yuan. Among them, Karamay also adjusted loan restriction terms, extending the validity of housing provident fund loan applications from within one year of obtaining valid housing purchase or construction documents to within two years; the rule allowing employees to withdraw funds for purchasing housing for children without income was changed to allow withdrawals for purchasing housing for immediate family members (limited to parents and children). Nanchang and Jinan also introduced new regulations on the upper and lower limits of housing provident fund contributions.
Among first-tier cities, only Shenzhen has proposed modifying housing provident fund loan limits. Currently, the "Interim Regulations on the Management of Shenzhen Housing Provident Fund Loans" are under public consultation. This consultation will first seek opinions from district governments, municipal government departments, and members of the Municipal Housing Provident Fund Management Committee, and after further revisions, will seek public opinions at an appropriate time. The first phase of the housing provident fund loan business aims to officially launch by the end of September this year.
It is reported that in the loan system design, Shenzhen will consider housing provident fund contributions, withdrawals, and loans as a whole. The loan limit will be linked to the employee's individual housing provident fund account balance. Under the premise of not exceeding the maximum loan amount, the longer the accumulation time and the higher the balance in the individual account, the larger the loan limit. Moreover, if both spouses contribute to the housing provident fund, their loan limits can be combined. Also, the applicant setting allows "parents to be co-applicants," meaning that when an employee and spouse apply for a housing provident fund loan, the balances of the employee's, spouse's, and parents' individual housing provident fund accounts can be combined to calculate the loan limit.
Mortgage rate discounts are not only for first homes. After the comprehensive reduction of first-home mortgage rates to the benchmark, Hefei has fully relaxed second-home mortgage policies. Seven banks including China Construction Bank, Bank of Communications, China Merchants Bank, Shanghai Pudong Development Bank, China CITIC Bank, Huishang Bank, and Industrial Bank have reduced second-home mortgage rates from a previous 20% increase to 10%. Recently, the Wuhan Housing Provident Fund Management Center announced that under the premise of adhering to differentiated loan policies, it is currently preparing to introduce preferential policies such as raising the maximum loan limit for second-hand homes.
Tax and fee preferential subsidies
Unlike the single form of relaxing housing provident fund loan limits, local governments' tax and fee preferences mainly take two forms.
First, local governments directly provide tax and fee preferential subsidies.
Monetary subsidies can also be considered a form of tax and fee subsidies. An example is the monetary subsidy for finished commercial housing in Yangzhou that caused a nationwide sensation in early May. At the beginning of May, Yangzhou publicly offered monetary subsidies for purchasing finished residential housing. Although the subsidy amount was not high, it also demonstrated the local government's attitude and was regarded by the industry as a "successful" test of the policy bottom. The Jiangsu Provincial Department of Housing and Urban-Rural Development's attitude toward Yangzhou's fine-tuning was that "if it contradicts purchase restrictions, it will be firmly stopped," which means the Jiangsu Provincial Department tacitly approved Yangzhou's approach. Yangzhou is not on the list of cities with purchase restrictions, so there is no possibility of contradiction.
Ma'anshan in Anhui Province has activated tax and fee preferential policies. On August 20, 2011, Ma'anshan announced a 100% subsidy on deed tax for self-occupied housing demanders and high-level talents purchasing homes. After February this year, various places have successively announced new tax and fee adjustment plans. Wuhu in Anhui stated that self-occupied ordinary commercial housing is exempt from deed tax and offers purchase subsidies. In mid-April, Yingkou City in Liaoning announced that civil servants and others who purchase new commercial housing within the city's Zhanqian and Xishi districts within the year (employees working and living in county districts can purchase locally) can receive a one-time housing subsidy, which is paid directly to developers.
Second, raising the standards for ordinary residential recognition.
On the surface, with the overall rise in city housing prices, raising the standards for ordinary residential recognition is inevitable. However, many cities had not raised this standard for several consecutive years before, and raising the standard affects the amount of tax paid when purchasing a home. Raising the ordinary residential recognition standard can also be seen as a disguised tax and fee preference.
Cities such as Beijing, Shanghai, and Tianjin raised the ordinary residential recognition standards at the end of last year and the beginning of this year. In mid-November last year, Beijing announced that the residential standard recognition would change from total price to unit price limits, with more detailed regional divisions. Wuhan in Hubei raised the total price limit for central district housing from 1 million yuan to 1.4 million yuan; for outlying districts, the total price limit was raised from 800,000 yuan to 900,000 yuan.
Unlike other cities that raised the ordinary residential recognition standards, Jiangmen took the opposite approach in early February this year, lowering the ordinary housing standard for the first time since 2005, from 7,574 yuan per square meter in the second half of 2011 to 7,204 yuan per square meter.
Home purchase with household registration
China's unique household registration policy makes urban household registration highly attractive, and local governments have not overlooked this point when fine-tuning policies.
In November 2011, Changchun in Jilin Province no longer required economic ability or housing area for household registration applicants. Similarly, Wuxi in Jiangsu Province lowered the housing purchase threshold for household registration from 100 square meters to 70 square meters. On January 12, 2012, Conghua in Guangzhou delayed the cancellation of the housing purchase household registration policy by two years.
A previous research report by the Chinese Academy of Social Sciences stated that 2012 would be the toughest year for the real estate industry since the reform of the housing allocation system. Industry profits sharply contracted, and bankruptcies among small and medium-sized enterprises could surge. At the same time, housing prices only slightly declined, with the overall drop not expected to be significant because "the difficulty of regulation is continuously increasing."
The "Real Estate Blue Book" released by the Academy of Social Sciences pointed out that in 2012, China's real estate policies would continue to consolidate the existing regulatory achievements, with regulatory policies continuously optimized and improved, but the difficulty of regulation would also increase. On one hand, idle capital at home and abroad still creates huge speculative investment demand in the real estate market, so curbing speculation will remain an important goal of real estate regulation this year; on the other hand, with the slowdown in macroeconomic growth and increased pressure to maintain growth, macroeconomic regulation may gradually shift from tightening to easing.
Zhang Dawei, Director of the Research Department at Zhongyuan Market Research, previously stated in an interview that local governments might subsequently adjust previously overly strict regulatory policies to ensure that those with genuine housing needs can enter the market. In terms of credit, there is still operational space to support genuine demand, such as expanding preferential interest rates.
The State Council's inspection team has just completed research on local real estate regulation. Whether local governments or real estate developers, waiting for the "diagnostic report" is undoubtedly a "long" process. During this period, local governments "dare not" make moves lightly, and developers choose to mainly observe without making many adjustments to project sales.
