Shanghai Govt Tries on Its Real Estate Flip-Flops

Which style do you think the head of Shanghai's housing bureau is wearing?

Just in case there was any uncertainty remaining regarding the determination of China’s central government to maintain its restrictions on the residential real estate market, Shanghai’s reversal on Tuesday of its attempt to allow more people to buy housing in the city should make clear that the current policies are here to stay for at least a few more months.

The move by the Shanghai city government, which was announced on the website of the city housing bureau late on Tuesday, cancelled a recent attempt at liberalising policies on home purchases which would have expanded the pool of people eligible to purchase second homes in the city to include non-residents who had lived in the city for more than three years.

Although city officials had earlier tried to deny that there had been a policy change at all, it was clear that authorities were trying to bring more buyers into the market in an attempt to revive the flagging housing market.

According to a report in the China Securities Journal, local housing transaction centres, which had earlier been reported as allowing non-locals to purchase second homes, are no longer approving such transactions.

The Shanghai battle between local authorities trying to keep their real estate cash machines running and China’s central government which is determined to rein in inflation and ensure social stability is only the latest such incident, after Wuhu in Anhui province, and Foshan in Guangdong had earlier been made to backtrack on their apparently unauthorised policy liberalisations.

While increasing the pool of eligible buyers is clearly not ok, there has been no reports of Shanghai having to rescind the revision of its standard for “ordinary” housing, which it implemented on February 17th, apparently in an attempt to encourage home sales by lower tax rates on transactions. Similar measures were adopted in the cities of Beijing, Wuhan and Tianjin.

The other approach by local governments trying to move more real estate which is apparently acceptable to the central authorities is raising the maximum government subsidised mortgage amount. Such measures, aimed at making more financing available to buyers, have been adopted in Nanjing, Dalian and Ningbo in recent months.

Given this lack of clarity, and the reliance of local governments on real estate transactions to feed their budgets, we should expect to see continued city level experimentation with new policies, and more than a few additional flip-flops in the coming months.