ST : China acts tough on 2nd-home buys

Apr 23, 2010

China acts tough on 2nd-home buys

Move part of extra steps to cool market amid bubble worries

By Fiona Chan

CHINA yesterday indicated it would take further steps to cool its red-hot housing market amid growing concerns over asset bubbles emerging in Asia.

Beijing will take a stricter view of whether home buyers are purchasing a second home, Reuters reported, citing the Shanghai Securities News.

Buyers of second homes in China have to pay a higher down payment than those purchasing a first home. Previously, regulators looked only at whether buyers had an outstanding mortgage to determine if their new purchase was a 'second home'.

But Mr Yang Jiacai, a director at the China Banking Regulatory Commission, said yesterday that regulators would now check if the buyer already owned a home, regardless of whether it was fully paid for, according to the report.

He also said Beijing may need to take more steps to dampen the property market, such as tax adjustments, as recent measures may have had only a limited impact.

This comes as the International Monetary Fund (IMF) warned in a recent report that the strong rebound in home prices in some Asian economies may lead to property bubbles.

Average home prices in East Asia have risen more quickly than rents, the IMF said in its latest Global Financial Stability Report. This is a typical characteristic of housing bubbles, in which people buy properties in the hope of making money from them rather than wanting to live in them.

If Asian housing markets keep booming without moderation, they may threaten financial stability as banks will be at risk if a bubble builds and bursts, and home valuations come crashing down.

To be fair, the IMF said, governments in the region have been taking measures to cool their real estate markets. In Singapore, the Government has increased land supply, lowered the maximum loans available for private homes and tightened rules on speculative purchases.

But the full effects of the cooling moves may take a few quarters to be felt, and the authorities may also need to 'fine-tune their policies' to prevent a bubble without stymying the economic recovery, the IMF said.

Other economists and financial industry players have also been raising concerns about emerging Asian property bubbles for months now.

Economists from the United Nations and Asian Development Bank cautioned about asset bubbles as early as last year, while DBS chief executive Piyush Gupta was also quoted in reports last week as saying asset bubbles have already formed in the property markets of Singapore, Hong Kong and mainland China.

At home, analysts are concerned about the effect China's cooling moves may have on Singapore developers with projects in China.

DMG & Partners property analyst Brandon Lee this week downgraded CapitaLand to 'neutral' after its first-quarter results came in below expectations, due to lower-than-anticipated sales in China and Australia.

While CapitaLand's pipeline of about 20,000 homes in China will allow it to benefit in the medium to long term, the near-term outlook is uncertain as Beijing appears to have hardened its stance on curbing property speculation, he said.

Mr Lee also maintained a 'neutral' call on Keppel Land for similar reasons: weaker first-quarter results than expected, as sales in China and Singapore fell below forecast.

'Given its exposure to the Chinese residential market, we think ongoing policy risks will cap any share price upside,' he said.

fiochan@sph.com.sg