On Thursday, the city of Wuhu in eastern China’s Anhui province reversed some of the restrictions on residential real estate transactions, becoming the first city in 2012 to attempt to revive its sagging property market.
According to a statement on the website of the Wuhu city government, the city will offer subsidies of RMB 50 per square metre on purchases of homes between 70 and 90 square meters, and subsidies of RMB 150 per square meter for new homes smaller than 70 square meters. In addition, the city will waive a deed tax on transactions.
Despite repeated statements by central government officials in support of the current restrictive measures, many local governments in China are dependent on revenue from land sales for the majority of their budgets. Last year, the city of Foshan in Guangdong province, announced that it would be abandoning some of the measure intended to cool real estate prices, only to reverse the move the next day after what many speculated was intervention by higher level authorities.
Regarding the move in Wuhu, Bloomberg cited a report from UBS AG to investors on Friday which noted,
“This might encourage more third-tier cities to follow Wuhu’s example of announcing new policies supporting end-users’ purchase of property. It should strengthen local buyer sentiment given the more supportive policies in addition to marginally relaxed loan credit.”
And investors immmediately took note of the Wuhu initiative as metric monitoring real estate stocks on the Shanghai exchange jumped 3 percent on Friday.
Among individual developer stocks, Vanke climbed 2 percent in Shenzhen and Poly Real Estate was bid up by 3.3 percent in Shanghai. In Hong Kong, Evergrande Real Estate went up 3 percent and financially strapped Greentown bounced 4 percent following the news.
It remains to be seen whether other cities will be able to follow Wuhu’s lead, but there was no move on Friday to reverse this decision by the local government, so investors are encouraged that this could be the first sign of relief for the nation’s real estate sector.