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Beijing government’s tightening package on propertyJohnson HuWhat’s new?Beijing local government released a policy package to cool down the property market. The key highlights as the following:a) To reinforce the supply on subsidized housing. In 2010, the land supply and new construction for subsidized housing will account for half of the total in the city.b) To reiterate the restriction on home purchases by foreigners. Overseas citizens who have worked or studied in the city above one year are allowed to buy only one unit of house.c) To reiterate the strict implementation on second home policies, i.e. down payment no less than 40%.d) To regulate land auction and developers’ land premium payment. A single piece of land should not be larger than 200,000 sqm of land area in auctions. The down payment for land auction should be no less than 50%. Developers who cannot meet the deadline for land premium payment, construction commencement and completion will be restricted for participation in land auctions.e) To curb the housing hoarding activities by developers. All units have to be launched in one time once the properties have been approved for presale. Meanwhile, according to government rule, the minimum presale scale is the same size as construction work permit.ImpactGovernment’s tone seems to be seriously on the supply of subsidized housing, but implementation needs to monitor. In our view, in light of surge of housing prices and stretched housing affordability, Chinese government have to increase of supply of subsidized housing to sustain a so-called “harmony society”. Nonetheless, the implementation of subsided housing construction has been poor over the past two years. Firstly, the construction of low-rent housing needs more input from local governments financially. Secondly, the increase of land supply for subsidized housing implies less land sales revenue for local governments due to low land cost of subsidized housing and possible squeeze of land supply quota for ordinary houses. Thirdly, supply of low-cost housing seems to be a regulation tool for governments rather than a consistent planning in long term. When housing prices go up, governments start to build more subsidized housing; when the property market slows down, governments slow down the pace of supply on low-cost houses.Governments will put more efforts to regulate developers’ operations this year. Strict implementation of land premium payment will enhance the requirement on developers’ financial capability. Developers with high net gearing have to slow down the pace of land bank expansion, but companies with solid financials should still see room for expansion. Meanwhile, idle land policy should be one of the key execution focus of governments this year.Impact on home buyers are more on sentiment. The package seems to be the lack of new policies to curb housing purchase. Hence, we read it is more on home buyers’ sentiment than hitting purchasing power.Signals for more policies to be introduced by major cities. Beijing’s policies seem to be quite seriously on cooling down the property market. We expect more cities to follow suit. Hence, we see this is another overhang in near term. This, coupled with bigger concern on credit tightening put more concern on the policy outlook in near term. Hence, we continue to maintain our relatively cautious stance on the sector.
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