Measures take aim at real estate sector
By Xiao Jia (China Business Weekly)
Updated: 2004-04-21 08:48

Wenzhouese, or Wenzhou residents, who are widely referred to as "Chinese Jews," given their business and bargaining acumen, were recently dealt with some serious business-related setbacks by local governments.

Several local governments in the Yangtze River Delta have released, in recent months, restrictions that effectively ban speculative housing investments.

Wenzhouese are known for their speculative housing investments. Therefore, the measures have widely been considered counter-attacks on the Wenzhouese.

While the restrictions will help guarantee market order in the long term, the measures will do little in the near future to eradicate housing speculation, experts suggest.

The first blow occurred in January, in Hangzhou, capital of Zhejiang Province, where Wenzhou is located.

Hangzhou's municipal government declared last year that, beginning on January 1, a 3-per-cent contract tax would be imposed on sales of unfinished properties.

The average contract tax in China is 1.5 per cent.

Some commercial banks in Hangzhou now require property buyers to pay at least a 30-per-cent downpayment, which increases housing transaction costs.

In nearby Ningbo, in addition to the contract tax, a tax has been imposed on transactions of houses that have been occupied for less than one year.

The tax rate can be as high as 5.55 per cent.

In Shanghai, where housing prices are at historic highs, transactions of unfinished housing have been restricted for several weeks.

In Nanjing, capital of Jiangsu Province, a regulation was implemented in late March to ban the reselling -- except between direct relatives -- of properties before deeds are approved by the government.

Combined with measures adopted by other city governments, Nanjing's officials require all housing transaction information be published on official websites to prevent private sales of housing.

Wenzhou's municipal government has prohibited local media from organizing groups of home buyers to view and purchase properties in other regions.

Wenzhouese prefer buying properties collectively so they can reduce risks and purchase prices. In recent years, media -- mostly newspapers and TV stations in Wenzhou -- have organized 95 per cent of housing purchase groups.

The measures were adopted after residents throughout the Yangtze River Delta complained, extensively, that speculative housing investments by out-of-towners pushed up housing prices.

Property prices nationwide rose 5.1 per cent last year. In many cities along the Yangtze River Delta -- known for its wealth -- housing prices rose 10 per cent.

Wenzhouese are widely considered the main speculators in the housing market, given Wenzhou's booming private-sector economy, massive private capital and Wenzhouese' renowned reputation for capitalizing on money-making opportunities.

Based on deposits in local banks, Wenzhouese have an estimated 100 billion yuan (US$12.08 billion) at their disposal.

If used to cover downpayments, Wenzhouese could purchase between 400 billion yuan (US$48.31 billion) and 500 billion yuan (US$60.38 billion) worth of properties.

Last year, 1.01 trillion yuan (US$122.05 billion) was invested in China's real estate sector. That was up 29.7 per cent over 2002.

"In the long term, the measures will help promote the healthy development of the real estate sector," said Samson K. T. Chan, vice-president of Stanley & Partners, a leading property consultant based in Hong Kong.

The firm operates mainly in Shanghai.

Short-term speculative housing investments might cause market fluctuations, and some restrictions are necessary to discourage the behaviour, Chan said.

It remains to be seen, however, if the measures can be effective in the short term.

For example, home buyers have not been able to obtain mortgages to pre-purchase unfinished housing. Yet, real estate developers continue to pre-sell properties because they need to recover their investments.

Some real estate developers help market speculators file false documents and contracts so they can avoid paying the higher taxes, Chan said.

Measures aimed at restricting property speculation are unlikely to have much affect on the market, especially the luxury real estate sector, Chan said.

Pan Minglang, vice-president of HKI Group, which is developing the luxury Fortune Plaza, said few properties in the project are being sold to "speculative" investors because the price is already quite high.

"The short-term return from re-selling luxury properties will not be attractive to speculators," Pan told China Business Weekly.

Fortune Plaza is located in Beijing's Central Business District, which is the city's financial hub.

Maggie Zhao, public relations director of Shuion Group in Shanghai, agrees.

Most properties developed by Shuion are sold to local residents or people who work in Shanghai, Zhao told China Business Weekly.

Restrictions are unlikely to reduce housing prices in major Chinese cities, as local residents are the primary home buyers, Chan said.

Tremendous demand is the main factor pushing housing prices higher, Chan added.