Reverse or fine-tuning in policy?

December 12, 2011 / By

Recently there have been many news articles reporting that the current home purchase restrictions (HPRs) are scheduled to expire at the end of this year in 11 Chinese cities, including Suzhou, Qingdao, Jinan, Fuzhou, Xiamen, Hefei, Changchun, Nanning, Shijiazhuang, Haikou and Guiyang.

Last week, I had the opportunity to visit Suzhou and see several high-end residential developments. Although the projects’ sales rooms were all quite quiet during my visit, developers were not offering any higher discounts than three months ago as they were all quite optimistic and expected a strong recovery in sales volumes in 2012. A key reason for this optimism is that Suzhou’s HPRs are scheduled to expire at the end of this month, and so far there hasn’t been any official announcement that HPRs will be extended into 2012.

With revenues from land sales falling sharply compared to the past two years, some local governments such as Foshan and Chengdu have attempted to loosen tightening measures and revive the residential market, partially in order to boost developers’ appetite for new land acquisitions. So far, the Central government has not allowed the local governments to reverse the tightening policies, and we maintain our view that the Central government will not prominently reverse its residential market policy in the near term until market conditions compel them to do so. However, we expect that when the government begins to loosen policy, likely in the first few months of 2012, any changes will only be policy fine-tuning. The government is in particular likely to try to improve the affordability for first time buyers, as evidenced by the Beijng and Wuhan local governments recently redefining ordinary homes and broadening coverage for the preferential deed tax treatment.


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