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China’s Housing Demand Driven by ‘Unreasonable’ Speculation

Chinas Housing Demand Driven by Unreasonable Speculation
China Vanke Co., the nations largest publicly traded developer, said this week the outlook for demand for its homes will withstand government measures. Photographer: Keith Bedford/Bloomberg

China’s rising property market in the past few years was driven in part by “unreasonable” demand from speculators, according to Qi Ji, Vice Minister of Housing and Urban-Rural Development.

“The government’s property curbs are targeted principally at those who don’t have an immediate need for housing as accommodation,” Qi said in a press briefing in Beijing today. “Our basic aim is to direct the limited supply of housing to those who need it the most.”

Premier Wen Jiabao said over the weekend that China will “resolutely” press ahead with controls on the property market to curb speculation, reiterating a pledge to keep housing affordable. The government will “severely punish” irregularities in the real-estate market, implement differentiated credit and tax policies, and hold local officials accountable for maintaining stable home prices, he said.

China is seeking to contain gains in housing prices after they climbed for a 19th month in December. The government extended curbs in January, including raising the minimum down-payment for second-home purchases, telling local governments to set price targets on new properties, and introducing taxes for homes in Shanghai and Chongqing. The central bank also raised interest rates for the first time in three years.

“China’s problem with home prices will be gradually solved with the implementation of government policies and the strengthened responsibilities of local governments,” Qi said. The government is closely monitoring the property tax trials and has no intention to extend it further now, he said.

Curb Excessive Gains

China’s restrictions will curb excessive price increases in the big cities, China Banking Regulatory Commission Assistant Chairman Yan Qingmin said in Beijing today.

“The property prices rise faster and are higher in big cities,” he said. “There is more population inflow to the first-tier cities. As we carry out purchase restrictions, it can at least curb the excessive price growth in these cities.”

China also may introduce a new round of control measures if property prices don’t stabilize, China Securities Journal reported today, citing Housing Minister Jiang Weixin.

January new home prices increased in all but two of the 70 Chinese cities monitored by the government. The national statistics bureau is scheduled to report February’s housing data on March 18. China’s home prices rose 0.5 percent in February, the slowest monthly gain since August, as the government expanded residential curbs, SouFun Holdings Ltd. said.

Sharp Price Decline

Vincent Lo, chairman of Shanghai-based Shui On Land Ltd., said on March 6 that he expects home sales in China will fall “sharply” this year because of curbs, while China Vanke Co., the nation’s largest publicly traded developer, said this week the outlook for demand for its homes will withstand government measures. Poly Real Estate Group Co., the second-biggest, said last week the measures didn’t change its bullish outlook in the medium to long term.

The gauge tracking property stocks on the Shanghai Composite Index fell 0.6 percent at the 3:00 p.m. close, the most among five industry groups. The benchmark measure gained 0.1 percent.

China will also build 36 million units of social housing or affordable homes in the next five years, aiming 20 percent coverage of the market. That includes 10 million units each in this year and next, the country’s top planning agency National Development and Reform Committee said on March 6.

Affordable Housing Costs

The nation needs 1.3 trillion yuan ($198 billion) for the affordable homes this year, excluding land costs, Qi said. The central and local governments will provide about 500 billion yuan in funding for the construction, Qi said. Local governments should channel at least 10 percent of land income to these homes, he said.

China will use some funds raised from 200 billion yuan of debt sold on behalf of local governments, with affordable housing as a priority, Qi said.

The nation’s target for affordable housing will have a major impact on the residential market because these units will account for half of the market share, Pan Shiyi, chairman of Soho China Ltd., the biggest developer in Beijing’s central business district, said on a conference call last week.

China will build at least 2.2 million public rental homes next year, increasing the supply of low-cost housing to curb gains in rents, according to Shen Jianzhong is director of Real Estate Market Supervision Department at the Housing Ministry.

“Rents have room to climb given inflation is still accelerating,” he said. “The rental market isn’t transparent so we will monitor it.”

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