land ready for homes in cities with property oversupply , limited by China +property tax lowered for chinese homebuyers reduced

China will reduce or stop issuing land for new residential housing projects in areas where there is a supply glut, the latest in a series of measures aimed at clearing a property overhang weighing on the economy.

China's land ministry will not release vacant land to commercial property developers in cities and other areas where there are large levels of unsold inventory, state television reported on Sunday, citing a ministry meeting.

Land minister Jiang Daming plans to reward cities that effectively reduce their inventories by giving them permission to make new land allocations.

China has announced a string of measures designed to boost the housing market, a crucial driver of the economy. Real estate investment affects more than 40 other sectors in China, from cement to furniture.

The finance ministry said on February 19 that it will lower transaction taxes for second-time home buyers and some first home buyers in many cities. It followed a February 2 announcement of a further reduction in the minimum down payment required for first- and second-time home buyers in most cities. Minimum down payments had previously been cut in September.

The ministry also said on Sunday that it will increase land allocations in cities that have allowed migrant workers to purchase urban homes, referring to a separate measure designed to help tackle oversupply.

China had 718 million square meters of unsold commercial and residential housing space at the end of 2015, the National Bureau of Statistics reported on January 19, a 15.6 percent increase from a year earlier.

Growth in property investment eased to one percent in 2015, the slowest in nearly seven years, even as national sales improved, the data shows.

the big slow down

"As the second largest economy in the world, China plays an important role in driving global growth and increasingly in global financial markets. Growth in China is holding up even as the economy undergoes an important rebalancing: after all, growth last year was 6.9 percent and is projected at 6.3 percent in 2016.

We do not believe that China is facing a hard landing, and recent data continue to bear this view out.

But the country is facing major policy challenges as it transitions to a growth model driven increasingly by consumption and services, rather than public investment and exports. Financial and corporate sector vulnerabilities have been rising—total credit to nonfinancial corporates rose from 124 percent of GDP in 2011 to 163 percent of GDP in mid 2015. These will need to be addressed as the economy is transitioning toward a more market-based financial system that discourages the buildup of new imbalances. The internationalization of the renminbi and greater financial integration with global markets represents an important step forward not only for China but for the international monetary system. This transition may become bumpy at times, but a strong commitment to reform and effective implementation with clear communication are essential"José Viñals
Financial Counsellor and Director of the Monetary and Capital Markets Department, IMF February 2016

"China’s growth transition. China has embarked on an ambitious rebalancing of its economy—from industry to services, from exports to domestic markets, and from investment to consumption. It is also moving towards a more market-oriented financial system.
These reforms are a necessary process that, in the long run, will lead to more sustainable growth and benefit both China and the world.

In the short run, however, it will lead to slower growth, and this slowdown creates spillover effects—through trade and lower demand for commodities, and amplified by financial markets." Christine Lagarde February 2016

China today is facing a critical challenge: How to fill the people into millions of empty, unsold homes. Most of these properties are in third- and fourth-tier cities, which have been hit hard by emigration to larger cities.

Local authorities in Henan Province are pinning their hopes on urbanization as a source of property de-stocking. The province vowed to allocate at least 300 million Yuan annually, to encourage farmers to buy their first home by cutting transaction fees.

“Urbanization can’t be realized, if migrant workers have nowhere to live in the cities. So we will dedicate our efforts to making sure they can settle down in where they want, and enjoy the same social benefits. This will fuel the consumption of housing,” said Li Xuejun, an engineer.

floor space of residential buildings completed ,unsold

Value from Contracts Signed by Construction

Enterprises, Accumulated (100 million yuan)

Floor Space of Residential Buildings Sold(10000 sq.m)

Investment of Real Estate , Accumulated(100 million yuan)

data NBS China

In 2014, China’s housing market experienced a downturn, due to weaker demand and a supply glut. And the trend continued into 2015, with a continued decline in sales and prices.

growth fueled by debt

"Facing the high inventory of real estate, we should play a bigger role, and control the land supply to directly contain the situation," said, a Chinese housing official.

The ministry will take a mixed approach, as it tries to balance de-stocking with the urbanization of migrant workers.

"For cities and towns witnessing the fast urbanization of migrant workers, and much de-stocking of real estate, we will increase their quota of residential land supply," Jiang said.

Reduced Property Tax

China is to lower its taxes on property transactions, a policy which will take effect from Monday. From now on, taxes will be charged based on the floor area instead of the use of the property.

For first-time buyers, a tax of one-percent will be charged on a property with a floor area less than 90 square-meters. For one covering more than 90 square meters they will be taxed 1.5 percent. That tax rate used to float between 1.5 and 3 percent.

However, the biggest cuts are for second-time buyers who seek a floor area larger than 90 square meters tax on these will now be 2 percent, one percentage point lower than before. But this cut doesn't apply to the mega cities of Beijing, Shanghai, Guangzhou or Shenzhen.

These tax cuts are the third stimulus measure this month, after the central bank lowered down-payments in non-first-tier cities, and increased interest rates for public accounts designed for home purchasing. These measures are aimed at "de-stocking" the property market -- the State Council has said more than 700 million square meters of floor area are vacant in the country, and this will take up to six years to digest.

Further Reading

Google plans to re-enter China this Autum 2015

Chinese firm to invest in UK housing projects

SOUFUN gets $400M private equity funding from IDG Carlyle and management members

IMF’s Executive Board SDR Basket completed review ,