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Gonna Take You Higher: Panic Buying Cause Home Prices To Rise In China

Fears of government restrictions have seen a surge in last minute buying.

By Jeff Vasishta April 21, 2017

Just when you thought they couldn’t go any higher, China’s home prices rose in the most cities since October. Panic buying to get ahead of government restrictions to curb property purchases is widely thought to be behind the increase, reports Bloomberg.

Not including government housing, new home prices gained in 62 of the 70 cities tracked by the government. It’s up from 56 in February, according to the National Bureau of Statistics. Ironically, the government sanctions, which are being imposed to help ward off a housing bubble, may have inadvertently caused one.

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“Buying restrictions may lead to some panic buying,” said Yan Yuejin, a Shanghai-based analyst at property data and consulting firm China Real Estate Information Corp.“As more and more curbs nowadays simply rule some buyers ineligible, people will be more active to get a home in case they are barred from the market someday.”

The scope of tougher buying regulations have been widespread. In Beijing, where home prices have increased 0.4 percent, the municipal government raised the downpayment requirements for second home buyers. In Guangzhou a March 30 ruling, to curb flipping, stated that new homes couldn’t be sold for two years. The city also announced tougher scrutiny on home loans to couples that have been recently divorced, which stems from concerns about recent separations to circumvent home ownership restrictions. A smaller city, Lianjiang, ruled that all taxes had to be up to date for prospective property buyers to buy new homes.

On average home prices increased by 0.97 in March from the previous month, according to Fang Holdings Ltd., which tracked data from 100 cities. The beneficiary from buying restrictions in the larger Chinese cities appears to be its smaller cities such as Yancheng, a small city of seven million residents in northeastern Jiangsu province, which experienced a real estate boom in 2016.

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Even county-level cities like Jurong, next to Nanjing, have seen rapid price growth. These are stats which are bound to please the Chinese government which placed restrictions on tier one and two cities to spread prosperity to smaller cities and encourage migrants from the country to settle there instead of the expensive major conurbations.

The tier system in China is used to classify the country’s 660 cities, according to GDP, political administration and population. Beijing, Shanghai, Guangzhou and Shenzhen are considered to be tier-one, with provincial capitals usually in the second tier and prefecture level capitals in the third.

The government said it is speeding up construction of infrastructure such as intercity subways and making other general improvements to small cities to attract people to stay in the smaller cities as expansion there booms. It has learned its lesson. New construction in these smaller cities such as Kangbashi led to stunningly beautiful modern buildings which have remained empty as workers have shunned them in favor of tier one and two cities, where they are able to find work more readily.

“Cities and districts built without demand or necessity resulted in what some Chinese scholars have termed, literally, ‘walls without markets’,” says William Hurst, political science professor at Northwestern University. “Or what we might translate as uncompleted or hollow cities. Political exigency and investment hysteria trumped economic calculus or consideration of genuine human needs.” The government are hoping their ghost towns may soon come to life.

Jeff Vasishta

ABOUT THE AUTHOR Jeff Vasishta

ABOUT THE AUTHOR Jeff Vasishta

Jeff is a writer, husband and father but not necessarily in that order. As a music journalist he counts Prince, Beyonce and Quincy Jones amongst those he’s interviewed. He's also owned and flipped homes in Brooklyn, NJ, CT and PA.

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