Chinese Cities Implementing Price Controls

Some Chinese cities have given up on various housing regulations and gone straight to price controls. One city has enacted limits similar to hte stock market, only allowing an annual increase of 6 percent. The article discusses the cost of regulation, but doesn't mention the biggest: market distortions that will create artificial scarcity as demand exceeds supply.

People's Daily: 部分城市设置房价“涨停板” 限价式调控卷土重来?
Fujian Ningde Limit Order

  Require high-rise residential buildings not exceeding 11,000 yuan

  The seven ministries and commissions, including the Ministry of Housing and Urban-Rural Development and the Ministry of Public Security announced that since July to December, they have carried out special actions to control the property market chaos. In the first ten days of July, more than 20 regulations have been introduced throughout the country. Among them, the “limit price” formulation and measures frequently appeared in the policy rules of many cities such as Kunming, Dali and Ningde in Yunnan.

  In the first month of July, Kunming’s adjustment and upgrading, and the requirement for commodity housing to accept price management, the average monthly actual sales price shall not be higher than the average price of the same housing, the same quality, and the same type of commodity housing contract. After the pre-sale price for 6 months, you can apply for adjustment, and within 12 months, the average price of the commodity housing contract network signing shall not exceed 6%.

  The Huashang Daily reporter learned that Dali has not yet requested the property market to limit sales and purchase restrictions, but the price limit policy has been first introduced: the new housing for the pre-sale permit project, the price change of the declared price must not exceed 10%. The pre-sale price can be applied for adjustment after 6 months, and the floating time must not exceed 6%.

  The most clear target is Ningde City, Fujian Province. The local requirement is that the average price of new commercial housing in the central city is based on the level of January 2018 (8882 yuan / square meter), the annual increase is controlled within 6%, and the average price of ordinary high-rise residential (raw) pre-sale is the highest price. The maximum control is within 11,000 yuan / square meter. The increase in the second half of this year is controlled within 3%. Because of the similarities with the capital market price limit, the price control target is also known as the “price limit” of the house price.

  Yan Yuejin, research director of the Yiju Research Center think tank, said that setting limits on housing price increases is a means that many local governments will adopt in regulation and control, but it is relatively rare to use a specific proportion. Ningde's price limit policy signal is of great significance, which is mainly based on the fact that there are still obvious market overheating phenomena in third- and fourth-tier cities.

  More cities or follow up

  There is controversy over the effect of price limit regulation

  From the previous regulatory process, the price limit order is not new. As early as 2011, the “New Country Eight Articles”, one of which requires “the people’s governments of each city should reasonably determine the annual new housing price control targets in the region according to the local economic development goals, the growth rate of per capita disposable income and the ability of residents to pay for housing” .

  In the past two years of regulation and control, many cities across the country, including Xi'an, Chengdu, and Chongqing, have also involved control over house price adjustments in regulatory measures, but there are certain differences in specific content.

  In September last year, the Xi'an Municipal Price Bureau issued the "Notice on the Issues Concerning the Declaration of Commodity Housing Price by Xi'an Municipal Price Bureau", that is, the commodity housing must be reported to the price department before the price adjustment, and the price publicity system is implemented. As of July 12 this year, the Xi'an Municipal Price Bureau has publicized the price of forty-seven commercial housing units, and compared with the price of the same batch of houses in the same real estate, there are many prices of the same residential area. However, the price of some houses is affected by multiple factors such as building and product, and there is a stagflation or a small decline.

  “The price limit is equivalent to the comprehensive control of housing prices. The original intention of local governments is to further support rigid housing demand, curb speculative real estate, and create a standardized and orderly market order.” Shen Wei, chief market analyst at Meicheng, said that In the 70-city housing price index released by the Statistics Bureau in May, Kunming’s year-on-year increase was over 10%, and the reality of regulating housing prices needs to be highlighted. She said that the current price increase in first- and second-tier cities has generally narrowed or even reversed. Most of the increase is mostly in non-hot cities and third- and fourth-tier cities. Under the background of tightening regulation, there will be no more exclusions. The city followed up with a limit order.

  Some analysts believe that the price limit order is symbolic and will have a certain impact on market expectations. As for whether more cities such as Xi'an should set a price limit target, it is also necessary to observe the price and market reaction and the attitude of the regulatory layer.

  There are also opinions about the effectiveness of the price limit order. Zhang Bo, chief analyst of 58 Housing Research Institute, believes that the “one size fits all” approach to price limit is suitable for all regions and cities, and further discussion is needed. Although the way of replacing market means with administrative means is applicable to short-term regulation and control, in the long run, it should continue to consolidate the long-term mechanism for regulating the property market.

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