Recent rumors that first-tier cities would tighten their real estate policies have been confirmed, as Shanghai and Shenzhen have相继 introduced new measures to regulate the housing market. These include raising down payment loan ratios, increasing the eligibility threshold for homebuyers who are not local residents, and strengthening oversight of real estate agents while strictly controlling the use of financial leverage in property purchases.
The opinion states that, for non-local residents, the eligibility requirement has been raised from requiring proof of continuous personal income tax or social insurance contributions in the city for at least the past year—calculated from the date of purchasing a home—to a requirement of 3 years, with a cap of one residential property purchase. Meanwhile, households with local residency (including those where some family members hold local household registration) will continue to be subject to the限购 policy, which limits them to purchasing two homes.
Intensifying Efforts: New Policies Emerge One After Another in Tier-1 Housing Markets
On the 25th, Shenzhen swiftly rolled out new real estate market regulations titled "Opinions on Improving the Housing Security System and Promoting Stable, Healthy Development of the Real Estate Market," announcing that it will tighten home-buying eligibility criteria for non-local residents and implement differentiated housing credit policies.
The opinion states that, for non-local residents, the eligibility requirement has been raised from requiring proof of continuous personal income tax or social insurance contributions in the city for at least the past year—calculated from the date of purchasing a home—to a requirement of 3 years, with a cap of one residential property purchase. Meanwhile, households with local residency (including those where some family members hold local household registration) will continue to be subject to the限购 policy limiting them to purchasing two homes.
At the same time, under the credit policy, differentiated lending measures will be implemented. For homebuyers whose households do not own any property in this city and who have no record of housing loans within the past two years, the minimum down payment ratio for mortgage loans will remain at 30%. Meanwhile, for homebuyers whose households do not own any property in this city but have a housing loan history within the last two years, or for those who already own one home in this city but have fully repaid the corresponding mortgage, the minimum down payment ratio will be set at 40%.
Notably, Shanghai also unveiled on the same day what has been dubbed its strictest-ever housing regulation policy, known as the "Shanghai Nine Measures." The "Shanghai Nine Measures" emphasize the stringent enforcement of home-buying restrictions. Specifically, the policy raises the requirement for non-local residents purchasing homes: the period during which they must have paid personal income tax or social insurance in the city will be adjusted from a cumulative total of more than 2 years within the 3 years prior to the date of purchase to at least 5 consecutive years before the purchase date. Meanwhile, for corporate buyers, any previously purchased residential properties must remain on the market for at least 3 years before being resold—though if the final buyer is an individual, the transaction will still be subject to the city's existing home-buying restrictions.
In terms of credit policy, the "recognize the home but not the loan" approach is being implemented. According to the "Shanghai Nine Measures," for resident families owning one home who seek to improve their living conditions by applying for another commercial personal housing loan to purchase a standard residential property, the minimum down payment required is 50%. Meanwhile, for those same families looking to upgrade their housing by taking out a commercial personal loan for a non-standard residential property, the minimum down payment rises to 70%. The "Shanghai Nine Measures" also emphasize that homebuyers must commit during the loan application process that their down payment will come entirely from their own funds. Failure to honor this commitment will result in the information being recorded as a breach of trust and shared on the city’s public credit information platform.
It is reported that ordinary residential properties in Shanghai must simultaneously meet the following criteria: each unit must be 140 square meters or smaller, with an actual transaction price no more than 1.44 times the average transaction price of housing on land plots of the same grade, and the total price should not exceed 2.3 million yuan per unit for properties located outside the Outer Ring Road, 3.1 million yuan per unit for those between the Inner and Outer Rings, and 4.5 million yuan per unit for properties within the Inner Ring Road.
Regarding this, Gu Jinshan, Director of the Shanghai Municipal Commission of Housing and Urban-Rural Development, stated that since the second half of last year—and especially after 2016—Shanghai's real estate market has seen irrational overheating sentiments. As a result, housing prices have begun to rise at an accelerating pace. At the same time, there have also emerged new challenges, including a resurgence of investment-driven speculative demand and instances of non-compliant practices by certain enterprises and industry professionals. Therefore, as housing is a special type of commodity, it is even more crucial to maintain market order and stabilize market expectations.
Shifting "Deleveraging" to a Policy Priority
Notably, this round of policies all involve prohibiting the use of financial leverage to pay down payments. The "Shanghai Nine Measures" explicitly state that real estate developers and property agencies are strictly forbidden from engaging in off-exchange financing activities such as down-payment loans, bridge loans, self-financing, self-guarantees, or pooling funds. Additionally, a special crackdown will be launched against various informal financial institutions offering diverse forms of financial services for property transactions.
Shenzhen's latest policy clearly emphasizes strengthening financial risk control in the real estate sector. Building on the city-wide review of risks associated with down-payment loans conducted earlier, the city will continue to carry out comprehensive financial risk assessments and targeted rectification efforts. Financial institutions—including internet-based fintech firms and micro-lending companies—are strictly prohibited from engaging in risky practices such as down-payment loans, crowdfunding for property purchases, or bridge financing that rely on excessive financial leverage.
"The focus of this round of new real estate policies is 'deleveraging,'" says Guo Yi, Market Director at Yahao Institute. He notes that the recent Lianjia incident highlighted an unusual trend in the property market—namely, the use of leverage to clear housing inventory—while off-exchange margin financing has also seen a significant resurgence. However, amplified financial leverage could easily fuel an even larger housing market bubble, posing substantial hidden risks to the financial system and thus drawing serious attention from policymakers."
Gu Jinshan also noted that some enterprises have engaged in improper practices. Specifically, certain developers and intermediary agencies have launched off-exchange financing products—such as down-payment loans—through P2P platforms. As a result, individuals who originally didn’t qualify to purchase a second home have been able to enter the market or even buy earlier than planned, thanks to these financing options. Such practices have significantly boosted market activity, while simultaneously fueling speculative behavior and increasing financial risks.
Indeed, off-exchange financing—previously common in the stock market—is now making its way into the real estate sector, with crowdfunding for home purchases and down-payment loans emerging as particularly prominent financial products. Take Shilian, a publicly listed intermediary firm that, like Lianjia Real Estate, specializes in providing small-scale loan products such as down-payment loans. According to its 2015 annual report, the company issued a total of 32,209 "Jiayuan Yundai" loans last year, totaling 2.992 billion yuan in mortgage amounts—representing year-on-year growth rates of 65.05% and 51.90%, respectively.
Consumer loans, often used as down-payment financing, are rapidly on the rise. According to data from the People's Bank of China, Beijing’s RMB consumer loans increased by 23.47 billion yuan in January, up 5.39 billion yuan year-on-year. Meanwhile, business loans rose by 990 million yuan, marking a year-on-year decline of 1.76 billion yuan. Notably, personal housing loans climbed by 17.62 billion yuan, representing a significant year-on-year increase of 5.89 billion yuan.
Meanwhile, according to two sets of data monitored by Lianjia Real Estate, among second-hand homes sold in 2015, approximately 25% had been owned for less than two years, while about 32% were held for between two and five years. In the past two months, property turnover has become even more frequent—among second-hand homes sold within the last two months, as many as 8% changed hands with owners holding the properties for less than six months.
Forecast suggests Beijing is highly likely to follow suit
Zhongyuan Real Estate's Director of Market Research, Zhang Dawei, believes that in addition to Shanghai and Shenzhen, tighter regulations are also highly likely in Beijing and several key second-tier cities. In fact, on the 27th, media reports revealed that the Langfang municipal government announced it is studying additional measures to further regulate market order and stabilize housing prices in the surrounding counties (cities) near Beijing, aiming to promote the steady and healthy development of the real estate sector. The detailed implementation plan is currently undergoing review and will be unveiled shortly.
However, Zhang Dawei believes this doesn’t mean real estate policies will tighten across the board. The housing market has already entered a “new normal,” and even in some cities where prices are rising rapidly, most third- and fourth-tier cities still face significant inventory pressures. As a result, differentiation will likely remain the defining feature of the market moving forward. Consequently, the future policy direction will no longer lean solely toward easing measures—it’ll shift instead to a two-way approach of both providing support at the bottom and setting caps on excessive growth.
Indeed, since last year, China has introduced the "3·30 New Policy" and the "9·30 New Policy," both aimed at boosting the real estate sector and delivering positive signals to the market. Following these measures, the housing market has shown divergent trends: while home prices in first-tier cities have surged once again, some second-tier cities have seen their prices rise in response, whereas property values in third- and fourth-tier cities remain sluggish.
According to the latest data from the National Bureau of Statistics, despite significant sales activity in first-tier and select second-tier cities, real estate inventory reached 718 million square meters by the end of 2015, representing a year-on-year increase of 15.6%. In January-February 2016, inventory further climbed to 739 million square meters, with growth accelerating to 15.7%—a trend indicating that the bulk of unsold properties remains concentrated in third- and fourth-tier cities.
In fact, the recent detailed plan for the business tax-to-VAT reform clearly distinguishes between first-tier and non-first-tier cities. For instance, the pilot program specifies rules for individuals purchasing second-hand homes: In non-first-tier cities, if an individual sells a home purchased less than 2 years ago, they must pay the full VAT at a rate of 5%. However, if the property has been owned for 2 years or more (including exactly 2 years), no VAT is due. Meanwhile, in the four first-tier cities—Beijing, Shanghai, Guangzhou, and Shenzhen—individuals selling homes purchased less than 2 years ago are required to pay the full VAT at the 5% rate. If the property has been held for 2 years or more (including exactly 2 years) but is classified as a non-ordinary residence, the seller must calculate the VAT liability by applying the 5% rate to the difference between the sale price and the original purchase cost. Finally, for ordinary residential properties held for 2 years or more (including exactly 2 years), no VAT is payable.