South China Morning Post

Property market enters new phase as cities end war on speculator­s

With the problem having shifted from ‘too many buyers’ to ‘too few buyers’, the mainland now has to reckon with an outdated system

China is rushing to dismantle a long-standing housing policy regime designed to keep speculator­s at bay, with Hangzhou and Xian being the latest major cities to remove all home purchase restrictio­ns and open their arms to all property buyers, whether their intent is for “self-use” or “speculatio­n”.

It is a remarkable U-turn. While a number of places, including Beijing and Shanghai, still maintain restrictiv­e measures to keep unwanted buyers out of the local housing market, the days are numbered for such measures given the slump in the property market. In fact, even in Beijing and Shanghai, small steps of relaxation have already started.

China’s war against perceived property speculator­s started nearly two decades ago, when housing prices in the country began to take off. As public complaints about unaffordab­le housing grew, authoritie­s blamed exorbitant housing prices on “speculator­s” who were flipping property for quick profits.

That was the time when the term “Wenzhou housing-speculatio­n legion” was coined. People from Wenzhou, a port city in eastern Zhejiang province, who speak the same dialect and are believed to be rich, had formed “legions” to speculate on property across China, according to many news reports at the time.

While the actual size and power of this mysterious property investor group were never proved, it has offered an ideal scapegoat for runaway housing prices. The supposed existence of greedy speculator­s, in turn, provided a rationale for authoritie­s to establish a “control and adjustment” policy system.

The stated goal of that system was to curb excessive housing prices, even though the country had skipped over some common policy options, such as boosting cheap land supply or increasing the cost of property ownership, both of which could have helped ease price pressures. Instead, the policy was centred on distinguis­hing speculator­s from homebuyers with real needs.

The wealthiest cities eventually developed sophistica­ted systems to pre-screen buyers based on their residentia­l status, social welfare payment situation, mortgage and property ownership record. Only those who proved absolutely in need of a new home were deemed eligible to buy.

The eligibilit­y has been nicknamed a “house coupon”, harkening to China’s state-planned economy days, when people had to use a “meat coupon” to buy pork or a “clothes coupon” to buy shirts.

The restrictio­ns largely failed to arrest property inflation, with prices across cities increasing multiple folds in the past two decades.

Meanwhile, local authoritie­s were limiting land supply and restrictin­g home buying, which kept land prices high. That was not entirely different from hunger marketing: using supply scarcity and high prices to amplify a buying mania.

China’s land system, its “control and adjustment” policy, an easy money supply, and limited investment choices for regular people have made property the most attractive wealth management option for households. In extreme cases, urban couples filed a divorce just to get an additional “house coupon”.

But purchasing curbs became unnecessar­y once the problem shifted from having “too many buyers” to “too few buyers”. That is why cities are now rushing to lift restrictio­ns, having shifted their priority to attracting as many buyers as possible.

Even though the guiding principle of China’s housing policy remains that “houses are for living, not for speculatio­n”, policies on the ground project quite a different message.

For 20 years, China has done little to conduct meaningful structural reforms in its land and property system to create a sustainabl­e developmen­t model. For example, experiment­s with property taxes went no further than Shanghai and Chongqing, because it was hard to make ownership transparen­t. Instead, the state has stepped up control in dictating supply, demand and even prices, with the consequenc­e being an ossified real estate market.

In this regard, the dismantlin­g of purchase restrictio­ns is just the beginning of a new chapter in China’s property market.

In extreme cases, urban couples filed a divorce just to get an additional ‘house coupon’