China tightens land purchase rules, bans villas

SHANGHAI: China is requiring a down payment for land purchases equal to 50% of a plot’s price and prohibited the supply of land for villas as the government sought to increase affordable housing.

The down payment must be paid within a month of signing the purchase contract, the Ministry of Land and Resources said in a statement on its website late Wednesday March 10.

Buyers must also pay a deposit when taking part in land auctions that is equal to 20% of the minimum price for the land.

China’s property prices rose at the fastest pace in almost two years in February, adding urgency to the government’s efforts to rein in speculation and increase the amount of affordable housing. A gauge of real estate developers dropped 0.7% yesterday, the steepest decline among industry groups on the Shanghai Composite Index.

“In the short term, we are cautious particularly if there is any policy launch after the People’s Congress,” Joseph Zeng, Hong Kong-based executive director at Greenwoods Asset Management Ltd, said in a Bloomberg Television interview, referring to the ongoing annual parliamentary meetings.

Property stocks are the worst-performing group on the Shanghai measure in the past six months, as Chinese officials sought to reduce the risk of asset bubbles, resurgent inflation and bad loans for banks after flooding the world’s fastest-growing economy with cash to drive a recovery. Premier Wen Jiabao warned of “latent risk” in the country’s banks in his speech to the parliamentary meeting in Beijing last week.

Residential and commercial real estate prices in 70 cities climbed 10.7% from a year earlier, the statistics bureau said on its website on Wednesday. That topped a gain of 9.5% in January.

To cool speculation, the government in January re-imposed a tax on homes sold within five years of their purchase, after having cut the taxable period to two years in January 2009 to bolster a then-flagging market.

The Land Ministry said in its statement that not less than 70% of new land supply should be used for affordable housing and smaller apartments, and that plots for villa construction are “strictly prohibited”. — Bloomberg