China’s property stocks plunged the most since June 2008 after the government intensified a three- year campaign to cool the real estate market, ordering higher down payments and stricter enforcement of sales taxes.
The Shanghai Stock Exchange Property Index lost 9.3 percent at the close of trading, its biggest drop since June 19, 2008. China Vanke Co. (000002), the biggest developer listed on mainland exchanges, fell by the 10 percent daily limit to 10.84 yuan in Shenzhen. Poly Real Estate Group Co. (600048), the second largest, also sank by the daily limit of 10 percent to 11.37 yuan.
China’s cabinet on March 1 told cities with “excessively fast” price gains to raise down-payment requirements and interest rates on second-home mortgages and ordered individuals selling properties to “strictly” pay a 20 percent tax on the sale profit when the original purchase price is available, a levy that is being easily avoided.
“The measures are much stronger than expected and will have more longer-term implications on the market,” said Zhao Zhenyi, a Shanghai-based property analyst at Industrial Securities Co., who downgraded the sector to neutral. “With the new tightening mainly on existing homes, buyers will not be able to take much leverage at all.’
The People’s Bank of China’s regional branches may implement the measures in accordance with the price-control targets of local governments, the central government said in a statement on its website. Cities facing ‘‘relatively large” pressure from rising house prices must further tighten home- purchase limits, according to the statement.
Many sellers now say they can’t provide the data and, instead of the 20 percent tax on sale profit, pay a tax of 1 percent of the total sale value, a lower burden in cities where prices have soared, according to Centaline Property Agency Ltd., China’s biggest real estate brokerage.
The 20 percent capital gains tax for existing home sales is new and unexpected, Jinsong Du, a Hong Kong-based property analyst at Credit Suisse Group AG, wrote in an e-mailed report today. The market will enter a wait-and-see mode in the next two months, while individual cities gradually announce local implementations of the new measures, Du said.
New-home prices rose for a ninth straight month in February, SouFun Holdings Ltd. (SFUN) said last week, 10 days after Premier Wen Jiabao told local authorities to “decisively” curb property speculation and ordered cities with fast price gains to cap the number of homes residents may buy. Li Keqiang will replace Wen in a once-in-a-decade leadership transition at the end of the annual gathering of the National People’s Congress this month.
There is a bubble in the Chinese property market, Vanke Chairman Wang Shi said in an interview on CBS Corp.’s “60 Minutes” in the U.S., adding that “if there’s a bubble” that spells “disaster.”
In Hong Kong, nine out of the 10 worst performers on the MSCI China Index were Chinese developers. State-owned China Resources Land Ltd. (1109) plunged 8.9 percent to HK$20.60, the most since Oct. 3, 2011. Sino-Ocean Land Holdings Ltd. declined 10 percent to HK$4.79.
Real estate companies found hoarding land or collaborating to push up home prices will be barred from getting new development loans or raising funds in capital markets, according to the government statement. The government will also “quicken” an expansion of the nation’s property-tax trials, it said in the statement, without providing details.
“We expected the measures would immediately affect buyers’ sentiment and hence sales volumes,” Eva Lee, a Hong Kong-based property analyst at UBS AG, wrote in a report today. “The new measures will ‘freeze’ the entire market and delay the originally planned sales schedules planned for the near term.”
Sany Heavy Industry Co. (600031) and Zoomlion Heavy Industry Science and Technology Co., China’s two biggest construction equipment makers also posted losses in more than two years. Sany sank 8.6 percent to 10.77 yuan, while Zoomlion slid 7.8 percent to 8.63 yuan, the most since November 2010. Anhui Conch Cement Co., China’s biggest cement producer by market value, plunged by 10 percent to 17.88 yuan in Shanghai, the most since March 2006.
The government’s almost three-year effort to curb property prices has included raising down-payment and mortgage requirements, increasing construction of low-cost social housing and restricting home purchases in about 40 cities. Authorities also have imposed a property tax for the first time in the cities of Shanghai and Chongqing.
The government in 2011 raised the down payment on second mortgages to 60 percent from 50 percent, and required the interest rate to be at least 10 percent higher than the central bank’s benchmark.
“There is still a lot of debate and uncertainty in the market over which cities and when the detailed policies will be implemented,” said Nicole Wong, a Hong Kong-based property analyst at CLSA Asia-Pacific Markets, said in a telephone interview today. “Stocks will fall until people are crystal clear about the issue.”
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