The battles against property inflation were fought locally in China, but the chain of command wound all the way up to President Xi Jinping, according to an internal memo and local officials who got instructions from the top.
A government document circulating on Chinese chat rooms reveals that Xi and Premier Li Keqiang recently took tough stances on the property market frenzy in major cities.
Xi warned that first and second-tier cities must stay alert to property “bubbles”. More explicitly, Li said he was “worried that housing prices would get out of control” and warned that local officials who couldn’t bring home prices under control would be held accountable.
Housing administration officials in two cities who were given the orders from the top confirmed that it was the strong messages from the top leaders that led local authorities to announce policies during the week-long National Day holiday to discourage property purchases.
As many as 21 Chinese cities with strong property-price gains, starting with Beijing on the evening of September 30, announced cooling measures. They included raising down-payment requirements for mortgage loans, and effectively banning investors from buying a second or third property.
The restrictions were rushed out, and the timing was extraordinary since they came during “golden week”, when most public offices and banks were closed, analysts said.
“The synonymous actions of so many cities suggested they were not volunteering, but were the result of high pressure from the very top,” Zhang Dawei, the chief analyst with Centaline Property, said.
According to the memo, provincial and municipal officials from cities with strong property-price gains this year were summoned to Beijing for an urgent meeting on September 30, at which they were lectured about the need to tame housing prices.
Requests for comments from the State Council Information Office and housing ministry did not receive an immediately reply.
One sign that the property-market cooling measures were not independent responses from different cities came from China’s central bank governor, Zhou Xiaochuan.
He said at a recent G20 meeting in Washington that Beijing had noticed rapid property-price increases in some cities and was taking active measures to tackle them, according to a statement on the central bank website. Zhou also said that China would rein in credit growth.
Easy bank credit is blamed as a key driver of the housing price boom. Banks have been lending aggressively to property buyers because they believe mortgage loans are the safest credit assets in an economic downturn. In July, for instance, almost every yuan of newly added bank credit ended up in the property market.
A key element of the latest tightening measures is to raise the down-payment requirement; in some cities, minimum payments for second and third homes were increased to as much as 70 per cent.
Shanghai, which rolled out its tightening measures on Saturday night, went further by requiring developers to use their own capital to acquire land.
Developers are prohibited from using bank loans or funds from trusts, asset managers or insurance companies to acquire land in the city.
The iron-fisted measures are having some initial effects. Average daily turnover in cities monitored by the China Index Academy, an agency that tracks property prices across the country, fell 48 per cent during the first week of October, compared to the previous week. All cities that had imposed restrictions saw a quick drop in property turnover.
Beijing, which fired the first salvo in this round of tightening and remains the most restricted place for property investment, saw its new home trading fall 74 per cent year on year in the first week of October.
“The new policy in Beijing will surely curb prices from rising. We’ll probably see a long period of a frozen market here,” said Si Zhi, a vice-president at Soufun Holding, which runs a property information portal.