Policy about-turn in Foshan home limits

Updated: 2011-10-12 11:07

By Wang Ying and Zheng Jiran (China Daily)

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SHANGHAI / BEIJING - Foshan, a third-tier city in the southern province of Guangdong, has become the nation's first city to ease recent restrictions on home purchases by allowing local families to buy an additional residence.

Further, it has decided to make residences that have been owned for at least five years tradable.

Policy about-turn in Foshan home limits

The moves were contained in a circular titled "Further Strengthen Control on the City's Housing Market", which was posted Tuesday afternoon on the website of Foshan's housing regulator.

The five-section circular is essentially a reversal of previous curbs on transactions that were intended to cool down the local housing market in line with central government requirements.

For example, local families are allowed to buy residential properties priced at less than 7,500 yuan ($1,176) a sq m from Thursday.

Residences owned for more than five years may be bought and sold without restrictions, said the circular from the Bureau of Housing and Urban-Rural Development of Foshan.

Analysts were divided on the apparent about-turn in the city's housing policy.

However, most expressed concern that similar steps might be taken by other second- and third-tier cities that rely heavily on land sales revenue.

"I don't think Foshan's decision was intended to remove the home purchase limitation. Instead, the decision aims to promote firm demand in the local property market," said Chen Sheng, deputy director of the China Index Academy in Shanghai.

"To my understanding, the home purchase limitation is targeted at dampening investment and speculation in the property market, not genuine demand.

"Setting 7,500 yuan a square meter as the standard for buying one more house" is apparently meant to focus on making low-priced homes available to those with a genuine need," said Chen.

Policy about-turn in Foshan home limits

Gu Yunchang, vice-president of the China Real Estate Association, said that "local governments have the right to impose purchase limits and adopt amendments in line with the changing property markets, to better cool speculation and protect people's needs" for living space.

Lu Qilin, research director at Shanghai Deovolente Realty Co, said he tended to believe that Foshan's new policy was an effort to strike a balance between reining in housing prices and maintaining economic growth.

"According to my knowledge, the average local home price in Foshan is about 9,000 yuan a square meter, which means a 7,500 yuan a square meter property will be in a less central area.People who buy such houses are more likely to be owner-occupiers rather than investors," said Lu.

The local government is encouraging reasonable living demand by making such new policies.

This is understandable, as the ultimate criterion in measuring a city government's performance is the city's economic growth rate, and this is something local governments will never give up, added Lu.

Zhang Hongwei, research director at Shanghai Tongce Real Estate Co Ltd, said although families can buy one additional house, there is no sign that mortgage policies will become more flexible.

Therefore, those who want to trade up will still have problems in buying a new home if they can't get a sufficiently large mortgage.

"The current economic data have softened, and a similar downtrend is evident in the property market. Maybe some other cities would follow Foshan, easing purchase limits in the future," Gu said.

Zhang agreed that some second- and third-tier cities, which experienced a chill in recent property sales, are likely to adopt similar policies to heat up real estate transactions.

"But such policies are only applicable in second- and third-tier cities that are looking to accommodate more living demand.

"In first-tier cities such as Shanghai and Beijing, it will be impossible to introduce such policies due to heavy speculative sentiment," added Chen.