China's property market is booming and in the meantime the soaring housing prices of appartments become unaffordable for most of the Chinese people.
China released several government measures on Wednesday aimed at curbing the growth of housing prices and preventing a property bubble from threatening its fast-growing economy.
January 26,2010, BEIJING - The State Council raised the minimum down payment for second-home buyers to 60 percent from the current 50 percent on Wednesday, and called on local governments to set price targets in the latest move to rein in property prices.
The new measures are expected to further cool speculation in the housing market after property prices in 70 major cities posted their fourth straight month-on-month rise.
"The 10 percent increase in down payment will have a big impact on the middle- and high-end housing market," said Carlby Xie, head of research and consulting for North China at Colliers International, a real estate agency.
The price for a two-bedroom apartment in Beijing along the Fourth Ring Road now stands at close to 3 million yuan ($450,000). A 10 percent increase in down payment means the buyer has to pay 300,000 yuan more.
The average annual income of a civil servant is around 100,000 yuan.
Local governments must set property price targets in line with local income levels for 2011 and the targets should be made public in the first quarter, the State Council said.
Those who fail to meet the targets will have to explain to the State Council, the statement said.
Local governments are also required to set a cap on the number of apartments residents can purchase.
People who already have an apartment are allowed to buy another but those with two apartments will not be permitted to buy any more, according to the statement.
"A sound implementation of these measures will definitely weigh down property prices, especially in second- and third-tier cities where speculative purchases are rampant," said Xie. "But for major cities such as Beijing and Shanghai, the impact will be small as the housing supply is limited."
Wang Gehong, president of Beijing GrandChina Real Estate Fund, said some administrative measures, such as purchase restrictions, are temporary, and "aim to curb speculation".
They will help the government gain more time to boost supply, especially of affordable housing, he said.
Such measures are also necessary to curtail developers' windfall profits and put the industry on more solid foundations, he added.
Industry statistics show that the profit margin for developing a property project ranges from 25 percent to 30 percent.
"There is no doubt that the government will further tighten control over the property market this year, and we are going to see a big drop in property investment and newly started housing projects," said Ren Zhiqiang, chairman of Huayuan Real Estate. "We expect floor space sold in 2011 will increase 10 percent to exceed 4 billion square meters, but the year-on-year price growth rate will drop this year."
Property prices registered their smallest year-on-year gains in December, after peaking at 12.8 percent in April.
Despite the slowing annual growth rate, property prices in 70 surveyed cities posted their fourth straight month-on-month rise, with the gain in December standing at 0.3 percent, according to the National Bureau of Statistics.
China should be cautious about the risk of a real estate bubble, World Bank Chief Economist and Senior Vice-President Justin Yifu Lin said on Tuesday.
"China must carefully study the cases of Japan and Ireland, where the collapse of the real estate bubble caused a financial crisis and economic stagnation," Lin told a symposium at Peking University.
According to Peng Wensheng, chief economist with China International Capital Corp Ltd, asset bubbles are a major challenge facing China. "A widening wealth gap is one of the major risks from ballooning housing prices, which will lead to social instability," said Peng.