More bite than bark as China takes aim at housing speculation

BEIJING (Reuters) – China’s plans to curb property speculation are likely to be more bark than bite, and markets have over-reacted because of the uncertainty over how local governments will implement measures including a 20 per cent capital gains tax on house sales.

Investors took fright this week over the potential impact of the tax – which has been in place for almost two decades but never strictly enforced – hammering shares of big property development firms such as China Vanke, Poly Real Estate, China State Construction Engineering and China Resources Land.

A police officer stops residents from rushing into a real estate trading center in Shanghai, March 5. China’s plans to curb property speculation are likely to be more bark than bite, and markets have over-reacted because of the uncertainty over how local governments will implement measures including a 20 per cent capital gains tax on house sales. Nervous homeowners have rushed to finalise sales, hoping to cash in on apartments before the rules take hold, and there were angry comments on microblogs, illustrating the level of sensitivity to any attempts to cool prices in a country where so many people have much of their wealth tied up in property

Nervous homeowners have rushed to finalise sales, hoping to cash in on apartments before the rules take hold, and there were angry comments on microblogs, illustrating the level of sensitivity to any attempts to cool prices in a country where so many people have much of their wealth tied up in property.

But local governments, expected to act by the end of next month on the plans announced on Friday – just days ahead of the formal transfer of power to new leadership in the world’s second-biggest economy – are likely to temper Beijing’s attempts to take the steam out of rampant property speculation.

Chinese tend to park much of their wealth in bricks and mortar as they have few other alternative investment options, and the authorities are alive to the risk of destabilising the Communist Party’s rule through mishandling the property markets.

While the State Council, China’s cabinet, wants to clamp down on housing speculation – home prices in the 100 biggest cities rose for a ninth straight month in February – it is giving cities more leeway to take charge of local markets. “The market always over-reacts when new rules are announced because of uncertainties and misinterpretation,” He Qi, vice chairman of the China Property Society in Beijing, told Reuters, noting Beijing was handing responsibility for checking house inflation to provincial governments which would, in turn, oversee the cities under their jurisdiction. “That means policies will be quite different in cities with (housing) over-supply and those with short supply,” he added.

Real estate and credit experts predicted the measures – which also include higher down payments on homes and increased mortgage rates – would do little to harm the homebuildingindustry or dampen enthusiasm among those first-time buyers Beijing is keen to encourage. “We don’t see the new policy will have a particularly huge impact on the industry,” Standard & Poor’s credit analyst Bei Fu told Reuters. “It targets speculators, but the market recovery since last year is driven by self-user demand.”