China: eight new measures to curb home prices

The Chinese government yesterday announced yet another set of 8 measures aiming to curb home prices. These measures included further tightening in mortgages, with the loan-to-value limit of second home mortgages restricted to 40% or lower while interest rate will be at least 1.1x of the benchmark, asking local governments to effectively manage the land supply, and increase constructions for economic housing (i.e. cheaper housing). The central government will also ask some cities with high home prices or home prices rising too quickly to strictly implement buying limits, stopping people from buying second or third home. Local governments will have to set the 2011 price growth targets for newly constructed housing by the end of first quarter. Furthermore, people who sell their homes within 5 years of purchasing shall be taxed. Interestingly, there has been no mention of the property tax.

I believe there will be nothing as effective as raising interest rates and aggressively tightening monetary policy in terms of curbing prices. Raising reserve requirement ratio alone may not work if interest rates are not raised, and administrative measures like raising tax and stuff do not usually work. New measures would affect transaction volumes more than curbing prices, and until the burst of the bubble is imminent, prices would hardly really fall. Certainly, Chinese real estate developers stocks is now getting crushed, but I think as far as the developers are concerned, you should be worried about the impact of lower transaction volume on their cash flow.

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About Zarathustra

Zarathustra: Founder and Managing Editor of Also sprach Analyst. Once an analyst, now an investor and entrepreneur. Based in Hong Kong, but Londoner at heart.