Over the past month, China's central government has made a series of major policy announcements aimed at cooling the country's booming housing market.

The latest move, which was announced by the State Council on January 10 along with 10 other measures, involved lifting the minimum down payment required on a second property from the current 20 percent back to 40 percent of the total cost.

In a policy document entitled Notes to Promote Healthy Development of the Property Market, which was released by the State Council on January 10, the central government announced eleven measures it planned to take in relation to the housing sector.

Included in the policy paper, the details of which can be found below, are plans to quicken the pace of affordable housing construction and ensure that enough land is being set aside for residential development each year. The government also pledged to tighten risk management in relation to property loans and to use a range of policy instruments to crack down on speculative behavior in the property market.

The release of the policy document, represented the central government's fifth major policy adjustment targeted at cooling the real estate sector.

Earlier moves included ordering developers to pay at least half of the price of government land purchases up front and also extending the minimum period for which home buyers reselling their property had to hold on to their property in order to qualify for exemption from sales tax, from 2 years back to the original 5 years.

The People's Bank of China's recent announcement to lift the cash reserve ratio of the country's large financial institutions should also help to put the brakes on the number of loans being extended to property buyers.

According to the latest data published by the National Bureau of Statistics, average housing prices in 70 of China's large and medium-sized cities grew by 7.8% during 2009. However, the price of housing in large cities like Beijing and Shenzhen, especially in the urban areas, were well above the national average, with the average price of a new apartments in Beijing 13.2% higher in December 2009 than they were twelve months ago. In Shenzhen, the average price of a second-hand apartment was 23.9% more expensive than it was a year ago.

Pan Shiyi, Chairman of SOHO China, one of the largest property developers in China, said, by lifting the deposit ratio and interest rates on mortgages, demand for housing can be greatly reduced. He also said, as long as the government continued to provide more land, developers would suffer great losses if they continue to hoard land they've purchased or kept available housing off the market.

However, some experts have warned that although the above measures may slow sales growth in relation to small and medium size dwellings, the average price of housing is likely to continue to rise, as speculative investors who purchase at the higher end of the real estate market are unlikely to be affected be the tightening of credit policy.

Putting on the Brakes: Five Major Policy Announcements

Dec 9, 2009
Meeting of the State Council Standing Committee
The committee decided to adjust the sales tax exemption policy, meaning that an individual who re-sold their property within 5 years of the original purchase would be taxed. The previous policy setting only taxed those who re-sold their property within less than two years of the original purchase.

Dec 14, 2009
Central Economic Work Conference
One of the points stressed at the conclusion of the annual economic policy setting meeting was the goal of supplying more ordinary commercial apartments and supporting people to own their own house or improve the conditions in which they live.

Dec 14, 2009
Meeting of the State Council Standing Committee
Increase residential ousing supply.
Rein in speculative behaviors in the property market.
Strengthen supervision and management of the market.
Promote the construction of government-subsidized afforadable housing projects.

Dec.17, 2009
Joint Announcement from 5 Ministerial Departments
Requiring developers to pay a down-payment of at least 50% of the complete price of the land they buy from local governments  

Jan 10
The State Council: Notes to Promote Healthy Development of the Property Market
1. Quicken the pace of construction of moderately and low priced commercial apartments.
2. Maintain effective supply of residential land, raising the supplying and developing efficiency of land use.
3. Strengthen varied credit policies for different kind buyers. Second-home buyers will have to pay at least 40% of the full price as a down-payment if they or their spouse or non-adult children want to purchase a second house.
4. Continue with the policy of setting varied interest rates for different kinds of home buyers. Ensuring that those not qualified for preferential policies don't take advantage of them.
5. Strengthen the risk management of mortgage loans.
6. Rectify the order of the property market.
7. Further strengthen the management of land supply and advance sales.
8. Strengthen market forecasting.
9. Solve the housing difficulties of 15.4 million low-income families by the end of 2012.
10. Provide more subsidies to low-price housing projects across the country, especially in central and western China.
11. Require provincial governments be held responsible for stabilizing local property markets and solving the housing difficulties for low-income families in their local area.

Links and Sources
Gov.cn: Meeting of the State Council Standing Committee (Chinese) - Dec 9
Gov.cn: Meeting of the State Council Standing Committee (Chinese) - Dec 14
Economic Observer: Central Economic Work Conference (Chinese) - Dec 14
NDRC: Latest Housing Prices Statistics (Chinese)
Ministry of Finance: Joint Announcement from 5 Ministerial Departments (Chinese) - Dec 17
General Office of the State Council: Notes to Promote Healthy Development of the Property Market (Chinese) - Jan 10