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Haikou to Remove Home-Buying Restriction as Property Revenues Fall - Rumor
26 Apr 2011
April 26, Haikou, capital of southern China’s Hainan province, is rumored to be considering withdrawing its home-buying restriction as the local property market is suffering, which is affecting government revenues from the property sector.
Should it go ahead with its decision, it would be the first city to do so since the central government introduced the property policy in late January.
The news surfaced on the popular Chinese microblogging service Sina Weibo on Monday evening.
No official confirmation or denial of the rumor has been made and no timeline for the removal of the restriction was mentioned.
At a municipal government meeting on April 20, Haikou mayor Ji Wenlin said Haikou should “make full use of favorable policies granted by the State Council and limit home prices rather than home purchases [to regulate the property market]”. Chinese media interpreted that statement as an indication of the city’s plan to pull the plug on its home-buying restriction.
“The removal has been talked about in Haikou for almost a month, as the restriction order led to dramatic declines in Haikou’s housing transactions, prompting developers to propose to the [Haikou] government that it remove the restriction,” Chinese real estate news portal guandian.cn quoted an unnamed Haikou-based developer as saying.
“The local government will probably ask the State Council for permission to remove the restriction based on policies regarding Hainan’s position as an international tourist destination,” the person said.
Hainan Island is one of China’s most popular tourism destinations and has been earmarked by the central government to become a “top international tourism destination”. On April 20, the island made duty-free shopping available to foreign and domestic tourists.
Property prices have been soaring in recent years as speculators eyed its development potential, prompting fears of a bubble. Investment in the province’s real estate sector totaled almost RMB 46.8 billion in 2010, up 62.5 percent year-on-year, according to official statistics.
“Another possibility is that the details of the current limitations could be changed instead of being abandoned completely, since Haikou’s property market is unique in that around 60%-70% of home buyers are non-locals,” he said.
On Feb. 28, Haikou outlined its home-buying restriction measures, prohibiting locals from buying a third apartment and completely excluding non-locals without evidence of tax or social insurance payments from the local property market.
After the measures were introduced, Haikou’s residential property transactions dropped 90% year-on-year in March to only 302 units, according to the local tax bureau.
Real estate sales revenues in Haikou fell 67.9% y-o-y to RMB 59.37 million last month, while revenues from the building sector shrank 33.1% y-o-y to RMB 44.25 million.
Revenues from land value appreciation tax also declined by 32.9% to RMB 140.9 million during the first quarter from a year earlier, according to the tax office. Many of China’s local governments rely on land tax and other revenues related to the property market for income.
Despite some sharp decreases, home prices in the city haven’t showed substantial declines. That’s because property companies with projects in Haikou are still sufficiently equipped with cash to endure the strict property curbs, according to the above-mentioned developer.
Analysts say some Chinese property developers, especially those experiencing cash flow problems, should consider slashing prices to boost sales in the event of a slowdown in the market.
Commenting on the possible removal of the housing-buying restrictions in the city, Yang Hongxu, head of China E-House’s property research institute, said in a posting on his Sino Weibo account that a complete removal would be overdone. Some adjustments might be helpful though, he added.
Yang predicted in February that local governments across China might suspend their restriction orders should they have an unduly negative effect on local housing markets. He is one of a number of analysts who have said the measures would only serve a temporary purpose at best.
Chen Jinsong, chairman of Shenzhen World Union Properties Consulting Co. Ltd. (002285.SZ), said on his Sino Weibo account that so long as Haikou successfully removes its home-buying restriction, other cities including Sanya, the second-largest city in Hainan, would also follow suit.
