China to put restrictions on real estate transactions

China said it will impose new taxes and other restrictions on real estate transactions, stepping up efforts to curb speculation that has caused what the government calls a property price bubble.

Home buyers who sell within two years of purchase will have to pay a tax on the sale price starting June 1, the official Xinhua news agency said, citing rules announced by seven government agencies.

The rate of tax wasn't specified. The government will revoke land-use rights for sites kept idle for more than two years to prevent hoarding by speculators.

China, the world's largest consumer of steel, copper and cement, has imposed a series of curbs this year to cool home prices that jumped 19 percent in the first quarter in Shanghai.

Premier Wen Jiabao (溫家寶) is seeking to damp property speculation without discouraging home buying that is sustaining growth in Asia's second-largest economy.

"Today's rules are much tougher than the market expected," said Li Huiyong, a Shanghai-based analyst at Shenyin Wanguo Securities Co (申銀萬國證券).

"The measures both increase land supply and curb demand. I expect the market to fluctuate a lot in the short term," he said.

Nationwide, home prices rose 13.5 percent from a year earlier in the first quarter, the National Bureau of Statistics said on April 25. The rate of increase in 36 major cities may slow to 7.5 percent in the second quarter, Beijing News reported today, citing a forecast by the National Development and Reform Commision.

Buyers of unbuilt or unfinished properties will be banned from reselling before construction has been completed, a practice known as "flipping," the Xinhua report said.

Land idle for more than a year after purchase will also be taxed, according to the report.

"These measures are specifically targeted at property investors and speculators," said Sun Jianping, an analyst at Guotai Junan Securities Co (國泰君安證券).

"We expect house prices increases will slow down this year. In some places, such as Shanghai, prices will go down."

China's government is concerned that speculation has been pushing home prices beyond the reach of most buyers, fueling social tension and raising the risk of a collapse.

Rising property prices pose a threat to the stability of Asia's second-largest economy, the State Council, China's cabinet, said in a March circular that ordered city governments to take measures to rein in growth.

The government should encourage "buying for living instead of investing," Zheng Jingping (鄭京平), spokesman the Beijing-based National Bureau of Statistics, said on April 20.

China started imposing curbs on real estate in June 2003, when the central bank ordered domestic lenders to tighten property lending to reduce loan risk and avoid a bubble.

The People's Bank of China (中國人民銀行) said on March 16 this year it would allow lenders to demand higher down payments from home buyers and boosted mortgage lending rates. The banking regulator warned lenders on April 27 to curb loans used to buy luxury real estate because of oversupply.

The measures reported by Xinhua were issued by the Ministry of Construction, the National Development and Reform Commission, the Ministry of Finance, Ministry of Land and Resources, People's Bank of China, the State Administration of Taxation and the China Banking Regulatory Commission. The announcements haven't yet been posted on any of the agency's Web sites.