China props up housing market

published 2 April 2015

The Chinese authorities have announced measures to shore up the sinking property market. The minimum downpayment needed on second home purchases will now fall to 40%, from current levels of 50%-69% in most cities and 70% in Beijing and Shanghai.

In addition, a capital-gains tax exemption will now apply to sellers who have owned their home for two years, down from a five-year minimum.

In February, house prices fell by an average of 5.7% year-on-year in China's 70 biggest cities. In January 2014, when they peaked, they were climbing at an annual rate of almost 10%. Property accounts for 23% of GDP when related industries, such as sales and home equipment, are taken into account.

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

https://cdn.mos.cms.futurecdn.net/flexiimages/mw70aro6gl1676370748.jpg

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

What the commentators said

For one thing, many developers already offer buyers ways to delay or avoid downpayment requirements, so it's unclear how much difference the measures make. And inventories of unsold properties are at record levels, while prices are already on the slide. It's going to "require a change to expectations, not just to the availability of debt", to arrest the housing slump that is dragging down the economy, said John Foley on breakingviews.com.

In markets driven by speculation rather than fundamentals "these are second homes, after all" the key factor is whether buyers think prices are likely to rise again. "That kind of psychological adjustment is not in the gift of bureaucrats."

That's why the authorities would be better off working out how to cushion the system against the property slump, continued Foley. China's planners can handle "technical tweaks", such as making banks build up their capital cushions. Micro-managing human behaviour is beyond them.

Andrew is the editor of MoneyWeek magazine. He grew up in Vienna and studied at the University of St Andrews, where he gained a first-class MA in geography & international relations.

After graduating he began to contribute to the foreign page of The Week and soon afterwards joined MoneyWeek at its inception in October 2000. He helped Merryn Somerset Webb establish it as Britain’s best-selling financial magazine, contributing to every section of the publication and specialising in macroeconomics and stockmarkets, before going part-time.

His freelance projects have included a 2009 relaunch of The Pharma Letter, where he covered corporate news and political developments in the German pharmaceuticals market for two years, and a multiyear stint as deputy editor of the Barclays account at Redwood, a marketing agency.

Andrew has been editing MoneyWeek since 2018, and continues to specialise in investment and news in German-speaking countries owing to his fluent command of the language.