Curbing property speculation
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In the latest regulatory framework, credit policies are being used as an important leverage to stem speculative activity. In the document, banks are required to raise the minimum down payment for second home purchases to 50 percent and the interest rate should be no lower than 1.1 times of their base rate. Even first-time homebuyers have to pay a minimum 30 percent down payment if their homes are bigger than 90 square meters. Commercial banks are also entitled to refuse loans to borrowers who cannot prove they have lived and paid taxes for at least one year in the city where they intend to buy their property, a move aimed at limiting mortgage-based home purchases by non-local residents.
Along with a tightened credit policy, an increased down payment and higher interest rates for mortgage loans are mainly aimed at increasing the cost of real estate speculation and reducing such activities. However, such a credit policy is expected to only influence would-be home investors and speculators. It stops short of punitive measures against buyers who already have more than two homes and made huge profits from the market.
Still, the adoption of a harsher credit policy aimed at increasing speculation costs and reducing speculation in the real estate market is expected to lower people's expectations on investment returns.
Under this policy, investment-based purchases will possibly become one of the last batons in the race to push up housing prices.
When a downward trend in home prices is detected, people owning more than two properties are likely to sell some of these to reduce possible risks from holding on to them. Any resulting panic among property investors will prompt them to sell "redundant houses" as soon as possible, thus increasing real estate supply against the declining demand.
To rein in runaway prices, the State Council also renewed pledges to increase the supply of land for construction and accelerate the building of affordable housing. All these measures will undoubtedly strike a deadly blow to the long-standing, low-cost investment and speculative activities in the real estate market.
Some local governments have also been accused of being behind soaring home prices over the past years.
To help fight the problem, the State Council document has put more onus on local governments to curb home prices. Those who fail to do the job will be held accountable.
The core of the latest regulatory measures is aimed at checking skyrocketing home prices and bringing the country's real estate sector back onto the track of providing for people's livelihood. The combination of the country's credit and tax policies is expected to prick property bubbles and develop the real estate market into a consumption-dominated one.
The author is a researcher with the Institute of Finance and Banking under the Chinese Academy of Social Sciences.
