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Home Buyers Snapping out Houses as Beijing Unveils New Curbing Policies

03-04 12:06 Caijing
The number of people appeared in transaction halls surged more than 50 percent than normal in Beijing

Home sellers and buyers, as well as estate agents, crowded both floors of the Real Estate Trading Center in Pudong District, Shanghai while snaking lines were formed early on the morning in another district's trading center.

This is a picture portrayed by Xinhua on Sunday, a day after Beijing unveiled its detailed measures to curb property, including the compulsory implementation of a 20 percent income tax levied on home sellers, a major force that sends buyers to snap up houses before the tax officially kicks starts.

The number of people appeared in transaction halls surged more than 50 percent than normal, Xinhua said, quoting a source working in a transaction center.

Both home buyers and sellers are concerned about the impacts from the new tightening policies, which may increase second-home transaction taxes by nearly 400,000 yuan for a 2,000,000 worth of house in Beijing (the average of second-home transaction price was 25,766 yuan per square meter in first half of Jan.), as both parties are reluctant to bear the costs.

Sellers are typically exempted from the 20% tax if the home is the seller's primary residence and if the seller has owned the home for more than five years. The majority of home sales in China are taxed at 1% to 3% of the value.

Markets are expecting the new rules to be carried out in late March and early April in major cities like Beijing and Shanghai, where prices rose the most during the past years.

Impacts of the new measures

Opinions are mixed on whether the new round of cooling polices will help clamp down prices, and where the price trend will evolve in the longer future.

"The impacts [of new polices] on market could well surpass expectations," said Yang Hongxu, a well-known property analyst in China. He expects activities in the real estate market will decline in the coming two quarters before rebound while price growth will slow to even the negative terrain in individual months, especially in the second-home market.

The roll-out of new policies could prove to be a bomb to market with Beijing's "resolution and gesture" in curbing houses leading to "amplified impacts" on the market, according to Song Huiyong, a chief researcher at Shanghai Centaline Property Agency.

ANZ analysts Hao Zhou and Liu Ligang said in a Monday's note, however, the 20 percent of capital gain taxes will help push up housing prices and transaction costs further.

"In the long term, the tax levied will be fully passed to buyers eventually." It said, "This is because, in the long term, the supply curve is flat at the point where price equals long-run average cots. The shifting supply curve downward means that the price to the consumer will have to rise at exactly the same amount as the tax imposed."

Details of China's new round of property tightening policies, as summarized by ANZ:

--The homeowners who sell their homes will be levied an income tax as high as 20% of the profit they make on the transaction; prior to the new rules, income tax was 1 percent to 2% of the sale price.
--Local branches of the PBOC in cities with soaring home prices can increase the down payment ratio to the property value and mortgage loan interest rate for home buyers purchasing a second unit.
--Non-permanent residents with one home or more, as well as those without a certain amount of years of tax payment certificates or social security payment certificates, will be barred from buying homes in the cities in which they currently reside.
--Local governments will be held accountable for curbing soaring home prices, and will be asked to make specific policies to curb rapid price increases.
--The central government will step up inspections of provincial-level governments' property market curb policies and performance. Those who fail to meet their targets will be penalized.
--The country's major cities, excluding Lhasa, have been asked to set annual price targets for newly-built homes and report to the public these targets in the first quarter of the year.
--China will work on to increase land supplies for housing, and the total amount of such land nationwide in 2013 should be greater than, or equal to, the annual average increase over the last five years.
--Cities and counties are required to make information on land supplies available to the public and report to the public their annual land supply plans before the end of March.
--Local governments and related authorities should release authoritative information on housing construction, trade, home prices and rent in a timely manner. They are also required to refute false information about the property market and punish those who start and spread rumors.
--Local governments should build online information systems on the personal home ownership of urban residents. All major cities must be connected to the system by the end of 2015.

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