China’s Property Curbs Are Unsuccessful, Billionaire Lo Says

China’s property curbs in the past decade have been unsuccessful and the new round of measures will slow property sales, said billionaire Vincent Lo, also a member of the government’s advisory board.

“Certainly they haven’t been,” said Lo, chairman of Shui On Land Ltd., a Shanghai-based developer, in an interview in Beijing yesterday. “Had they been successful, home prices wouldn’t have risen higher the more the government curbed.”

China on March 1 imposed its toughest curbs in a year, ordering the central bank to raise down-payment requirements and interest rates for second mortgages in cities with excessive price gains, enforcing a property sales tax and telling local governments with the biggest price pressures to tighten home-purchase limits. It ordered individuals selling properties to pay a 20 percent tax on the sale profit when the original purchase price is available, a levy that is being easily avoided.

The new measures will slow down property sales immediately because the 20 percent tax is not that easy to bear, Lo said.

Developers benefitted as homebuyers rushed to buy properties after interest rates were cut, spurring a rebound in prices in the second half of last year. China Vanke Co., the biggest developer that trades on Chinese exchanges outside of Hong Kong, said sales rose 28 percent in February after increasing 56 percent in January from a year earlier, while Shimao Property Holdings Ltd. said they rose 60 percent last month from a year earlier.

Shares of Shui On Land fell 1.4 percent to HK$3.46 at the close of trading in Hong Kong, bringing its loss this year to 7.7 percent. The 2013 decline compares with a 0.8 percent gain in the Hang Seng Property Index.

Market Forces

The government kept housing prices from rising too quickly, outgoing Premier Wen Jiabao said in his work paper at the beginning of the National People’s Congress this week in Beijing at the end of which he will be replaced by Li Keqiang. Residential property prices have climbed 50 percent during Wen’s last five-year term to the highest since China privatized home ownership in 1998, based on statistics bureau data.

Home prices rose for the ninth straight month in February, according to real estate-website owner SouFun Holdings Ltd.

“I agree with the curbs as they will prevent a crazy housing market and bubbles,” Lo said. “But too much intervention will hamper the market’s development.”

The new administration should build more social housing to boost supply because that is the best way to curb the market, Lo said. It should leave luxury homes to market mechanisms, he said.

“If people have money and are able to afford, why should the government control?” he said.

Xintiandi IPO

There is a bubble in the Chinese property market, Wang Shi, Chairman of China Vanke Co., the biggest developer listed on mainland exchanges, said in an interview on CBS Corp.’s “60 Minutes” in the U.S., adding that “if there’s a bubble” that spells “disaster.”

The government has raised down-payment and mortgage requirements in its almost three-year effort to curb the property market. It also imposed a property tax for the first time in Shanghai and Chongqing, increased construction of low-cost social housing and enacted home-purchase restrictions in about 40 cities.

Lo, a member of the Chinese People’s Political Consultative Conference, is in Beijing attending its annual week-long meeting. The conference is an advisory body to the People’s Congress, the highest governmental body in the country.

Shares held by Lo in Shui On, Great Eagle Holdings Ltd. and SOCAM Development Ltd. are worth about $2.7 billion, according to data compiled by Bloomberg.

Shui On said in January it will spin off the unit that developed the Xintiandi restaurant and bar district concept to focus on development. The developer plans to list the unit in Hong Kong. Lo declined to say how much money it expects to raise and give a timetable for the initial public offering.

(Updates with closing share prices in sixth paragraph.)
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