Shanghai increases down payment requirements

Shanghai's housing authorities have announced that they are stepping up limitations on home purchases in the city.

In particular, they are raising down payment requirements as part of an effort to restrain fast-rising house prices by limiting speculative buying.

Analysts say that more measures could be taken since policy-makers have not exhausted the many tools they have in the box. In the process, the city's housing market may see fluctuations in both trading activities and average prices, they say.

The new measure, announced Nov 28, says that the required down payment for first-home buyers is raised to no less than 35 percent of the total price, compared to the previous requirement of no less than 30 percent.

The definition of first-home buyer has also been narrowed to those who do not own a home and also have no record of a housing loan from any bank nationwide. Previously, the definition looked only at housing loans from banks in the city. Homebuyers who have previously applied for a home loan and have cleared their debt are not defined as first-home buyers, according to the new measure.

Other buyers are required to pay at least 50 percent as a down payment, and buyers of nonstandard apartments, such as villas and luxury apartments, are required to pay at least 70 percent down, according to the new measure.

"The move totally rules out speculative buyers in the housing market in Shanghai, giving no chance for them to leverage home loans to buy more apartments than they actually need," says Feng Shuguang, a realty agent at Shanghai Dongyun Real Estate.

These policies could have a significant impact on transaction volumes as many recent deals have been households upgrading properties, with many of these purchasers taking advantage of the 30 percent to 40 percent down payment requirements. The implementation of the new measures means many of these purchasers may no longer have the requisite capital for the increased down payments of 50 to 70 percent, says James Macdonald, head of Savills China Research.

"While this is unlikely to have an immediate impact on pricing, reduced transaction volumes will most likely cool price growth further. Additionally, if transaction volumes remain low for a sustained period of time, this will result in an increase in downward pressure on pricing," says Macdonald.

Since the beginning of 2016, Shanghai has launched a slew of measures to cool its overheated residential market.

wuyiyao@chinadaily.com.cn

(China Daily European Weekly 12/02/2016 page26)