Shanghai Chief Vows Housing Price Crackdown as Home Sales Surge

New restrictions on property development and home sales could be on the way in Shanghai as the city struggles with housing prices that rose nearly two percent last month.

Apparently fearing the beginnings of a bigger surge, such as the 38 price increase that Shenzhen has experienced in the last year, Shanghai Communist Party secretary Han Zheng, has now vowed to keep home prices in check to maintain the city’s competitiveness.

Han’s comments at a government conference this month have raised fears among investors that new measures could be on the way to tamp down the market, include higher taxes on transactions, and restrictions on sales of high end homes, according to an account in the South China Morning Post.

High Housing Prices Seen Thwarting Growth

Han, who is Shanghai’s top official seems concerned that high housing prices are hurting the city’s competitiveness as the overall economy slows.

“We must be fully aware of the task of controlling the property market and stand firm against a property bubble. We can’t blindly follow others’ steps in making real estate policies,” Han was quoted as telling the government gathering.

As China has repealed home purchase restrictions nationwide this year, first-tier cities such as Shanghai, Beijing, Guangzhou and Shenzhen have seen controls left in place because of ongoing high demand for housing.

In Shanghai average home prices rose 1.9 percent last month, according to figures from the National Bureau of Statistics, and are up nearly 10 percent over the last year. Shenzhen, where housing prices have risen 38.3 percent in the past 12 months, has reportedly drawn unwelcome interest from authorities at the National Development and Reform Commission (NDRC), a top planning body.

In Shanghai, officials believe that the city’s high housing prices have become a drag on growth. “If we fail to control the property market, the whole city’s competitiveness will be dented,” Han noted. However, no details were provided concerning how the city would implement its clampdown on home prices.

Land Sales Cancelled as Home Prices Jump

The local government’s decision to retard housing price growth has been foreshadowed this month by the cancellation of several land auctions, as officials apparently moved to head off high-priced projects before they got started.

On October 12th the government halted an auction in central Shanghai’s Yangpu district two days before the event, saying only that “more conditions are needed to be met to develop the land,” according to an account in Caixin.

Bidding for the 14.85 hectare plot of land, which would yield 132,000 square metres of housing, was set to start at RMB 4 billion ($630 million), and with six developers signed up to bid on the site, city officials were apparently concerned that the sale would set a new high price for the year.

Since the Yangpu sale was cancelled, another five auctions have been called off, according to an account in Bloomberg.

In the case of the Yangpu site, the government has rescheduled the auction for November, but with restrictions set on the size of units in the development so that it yields twice as many homes.

Han Zheng has indicated that the city needs to build more housing – especially small units – while cutting back on development of offices and retail space.

Shanghai Soars While Other Cities Suffer

While Shanghai and other first-tier cities try to clamp down on home prices, the housing market in most other parts of China is still struggling to emerge from a slump that started over a year ago, and is part of a broader economic slowdown.

On Friday China’s central bank announced the sixth round of interest rate cuts in one year, and made other moves to increase the supply of credit, after economic data released earlier in the week showed GDP growth slowing to 6.9 percent in the third quarter – the lowest rate since 2009.

A big part of the slide in overall growth has been due to tapering investment in the real estate sector, where an oversupply of housing in most cities has scared developers away from the market.

At the same time that home sales in Shanghai and the other first tier cities have been rebounding, 20 out of 70 large Chinese cities surveyed by the government last month still reported falling housing prices, and average prices were flat in 10 other cities.

Weakness in these smaller cities, which represent the majority of the housing market nationwide, has pulled growth in real estate investment down to 2.6 percent in the first nine months of 2015, compared to the same period last year.

With many analysts predicting that the government will push through more monetary stimulus to revive the market nationally this year, cities such as Shanghai, where real estate demand remains strong, are likely to roll out more measures to keep prices down, and increase the supply of housing units, in the months to come.