Regulator Booms Calm Fears of a Real Estate Bust
A new salvo in the fight to control China's booming real estate market was fired April 15 when the State Council raised the mandatory down payment ratio for buyers of second homes.
In the weeks that followed, additional yet complementary market controls were announced by several government ministries and departments. Then local governments started to follow suit with more specific rules based on local conditions.
The cannon-like blasts from regulators at all levels had an almost immediate effect on the market, halting what had been a steady climb for housing prices in major cities.
Yet the government moves failed to shake off many of the chronic challenges facing real estate market regulators in China. And as smoke from the latest salvo lifted, all sorts of unique and arguably troubling market conditions surfaced to test the government's resolve.
Of all these latest regulatory steps, the State Council's tightening of credit access for buyers of second homes was considered the most potent measure. Nevertheless, the directive failed to address certain awkward issues, including questions about what officially counts as a second home.
In an interview April 21, China Banking Regulatory Commission official Yang Jiacai offered a clarification that later flopped. He told media the down payment standard was based on how many homes, not mortgages, a family has. A day later, though, the government corrected Yang's statement by saying the down payment rule covers mortgage applications based on the number of homes as well as loans that a family has.
Some industry insiders said regulators advocating a "homes but not loans" basis for the rule may have wanted to encourage owner-occupied demand at the expense of speculative demand. The later adjustment to a "homes and loans" approach, they say, may have represented a compromise that considered the difficulties with implementing the initial approach; identifying home ownership can be hard to do in China, while identifying a mortgage holder is not.
An executive for China Construction Bank's mortgage department said efforts to track second-home loan applicants are based on "actually identifying the number of loans." On the other hand, the executive said, "it's currently not viable to look at home numbers unless the Minister of Housing and Urban and Rural Development (MOHURD) lets us link" computer systems.
On top of that "there is still a problem with whether local housing administrations have linked up their own networks," the executive said.
Meanwhile, a need for precision in mortgage control has become even more pressing. To achieve the "homes but not loans" goal, various government departments would have to tap information systems with nationwide coverage, then share the data. Some call that an impossible task.
"Currently, the MOHURD's information on individual real estate holdings is incomplete and divided by localities," a former ministry official told Caixin. "Identifying buyers of second homes based on the numbers of homes would be very difficult."
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