How will the removal of new home price limits affect homebuyers?
2024-08-19
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Our reporter Li Xiaohong
Since the beginning of this year, cities such as Shenyang, Lanzhou, Zhengzhou, and Ningde have clearly stated that they will no longer implement price guidance for the sales of newly built commercial housing. Yangjiang, Zhuhai, Wuhu and other places have also optimized the price limit policy for new home sales, involving shortening the time interval for adjusting registered prices and canceling the restrictions on floor price differences.
Many places have announced the cancellation of the sales price guidance policy for newly built commercial housing, which means that developers have more room to independently set prices and the real estate market will gradually move towards a highly market-oriented approach. How will this affect home buyers?
Cancelling the price limit for new homes is a trend
As a means of housing price regulation, the commercial housing sales price registration system has been implemented since 2010. It is a system that came into being during the period of rapid development of my country's real estate market.
"The new home price limit policy is to give a reference price to the transaction housing (usually a residential community) during the period of rapid housing price increase in previous years, in order to promote rational purchases by buyers, and to a certain extent restrict the overheated market at that time." Liu Lu, a professor at the School of Economics of Southwestern University of Finance and Economics, told China Economic Times that the supply and demand relationship in the real estate market has reversed, and the actual price of residential communities in some cities has also been lower than the guidance price. Therefore, as a temporary regulatory measure during the overheated real estate market, the new home price limit policy has gradually faded out.
Zhang Li, assistant professor at the School of Public Economics and Management of Shanghai University of Finance and Economics, told China Economic Times that since 2016, the new home price limit policies adopted by some hot cities have had a significant effect on rapidly cooling down the market and have also had a price-guiding effect on second-hand homes.
In Zhang Li's view, as the price of second-hand houses falls, the phenomenon of price inversion with new houses gradually disappears. The mission of the price limit policy has been basically completed, but its drawbacks are becoming increasingly prominent, which is reflected in the following three aspects. First, the price limit leads to the decline of building quality. Second, the "lottery" and "points" policies introduced by some cities to cope with the "hot" new houses have aggravated unfairness and speculative arbitrage, making arbitrage explicit, welfare-oriented, and lottery-oriented. Third, new housing projects with obvious price inversion and large profit margins have significantly impacted the second-hand housing market, and the siphon effect of the new housing market has led to a downturn in the second-hand housing market.
Liu Zhengshan, deputy secretary-general of the China Urban Development Research Association, said in an interview with a reporter from China Economic Times that theoretically, the commodity housing guidance price can reduce information asymmetry and enhance market transparency by providing a reference price for the market, so that buyers can more clearly understand the approximate price range of a certain area or a certain type of housing, and make more rational purchase decisions. Although the commodity housing guidance price has played a role in stabilizing the real estate market to a certain extent in a certain area, a certain period, it is difficult to effectively play its due role due to the defects in the formation mechanism and action mechanism of the guidance price.
Wang Ruimin, associate researcher at the Institute of Market Economy, Development Research Center of the State Council, believes that the price guidance of commercial housing is mainly an intervention in the price of new houses, which is a "double-edged sword". When the market is overheated, housing prices rise rapidly. Some cities have "price limits" for new houses. The advantage is that the prices are nominally "controlled", but the side effect is that the inverted prices of new and second-hand houses create arbitrage space, which in turn stimulates some investment and speculative demand to enter the market in large quantities, causing "false high" market demand, and real estate companies on the supply side will have the urge to "hold on" or reduce the quality of construction. The price guidance of commercial housing in some cities is still an important reference for bank loans, which to a certain extent controls the proportion of leverage used. In the downturn of the market, investment demand quickly leaves the market, rigid demand turns to wait-and-see, and housing prices fall rapidly. Some local governments have issued "price limit orders", which have the advantage of nominally controlling the downward trend, but the side effect is that it makes it difficult for developers to quickly recover funds through price cuts to alleviate liquidity risks.
"Withdrawing from the new home price limit policy can reduce constraints on market players." Zhang Li believes that by taking advantage of the current opportunity of the weakening of the inverted gap between new and second-hand housing prices, gradually diluting and canceling the new home price limit will not lead to a rapid increase in new home prices, and at the same time can curb speculative demand.
Housing prices will follow the market
In recent years, falling housing prices have become the mainstream trend, and the original price limit policy has lost its basis for existence. Adjusting the price limit policy conforms to the development trend of the market.
Liu Zhengshan believes that the cancellation of the new home price limit policy is related not only to its own shortcomings, but also to the current situation of the real estate market, that is, the real estate market has shifted from a seller's market to a buyer's market, and it is meaningless to insist on the new home price limit policy.
The cancellation of the new home price limit policy is due to the fact that the real estate market will gradually move towards a highly market-oriented operation. So, how will the market-oriented operation affect home buyers?
Zhang Li told China Economic Times that after the cancellation of the new home price limit policy, market prices will be more determined by supply and demand, which may lead to increased price volatility. For home buyers, this means that housing prices may be more flexible and may be too high or too low.
Liu Zhengshan believes that the removal of the price limit for new homes is a positive move. For homebuyers, it will help reduce the pressure of down payments, meet rigid and improved home purchase needs, and promote the recovery of the market. Moreover, the transition of the real estate market from administrative intervention to market self-regulation will help promote a healthier and more sustainable development of the real estate market.
Wang Ruimin told the China Economic Times reporter that in the new era when supply and demand relations have undergone major changes, canceling the guidance price of commercial housing is actually returning the pricing power of the real estate market to the market, so that price signals can better reflect the real supply and demand relationship and its marginal changes, which is conducive to market clearing. For home buyers, it reduces the cost of searching and matching; for developers, it is also conducive to speeding up the speed of sales collection and relieving liquidity pressure.
"The current price trend of the property market more reflects the characteristics of 'following the market'." Liu Lu suggested that homebuyers might as well pay attention to the average transaction price of the community as an important reference. If the target house is higher than the average transaction price of the community, you should think clearly about why the extra premium is expensive and whether it is what you want. On the contrary, if the price of the target house is lower than the average price of the community, you should also understand clearly whether there are any defects in this house and whether you can accept these defects.
In order to ensure the healthy development of the real estate market, Zhang Li suggested that, on the one hand, the government should strengthen market supervision, ensure information transparency, and prevent malicious speculation and unreasonable price increases. On the other hand, home buyers need to be more cautious, do a good job of market research, and rationally judge the value of houses.
In addition, in the process of gradually withdrawing the price limit policy, Zhang Li believes that attention should be paid to the following three aspects: First, reasonable price increase space should be given to high-quality residential properties, especially projects that meet high-quality residential standards (such as green buildings, prefabricated buildings, ultra-low energy consumption buildings, etc.). They should enjoy a reasonable market premium (approximately 5% according to international experience) to make up for the incremental costs of developers and promote industrial upgrading and high-quality development.
Second, priority should be given to canceling price limits on improved housing. For housing located in central urban areas and those with large areas and large units, the market pricing mechanism should be fully utilized to avoid administrative intervention that could lead to huge arbitrage opportunities.
Third, the price limit for housing in urgent need can be determined according to market conditions, but fairness issues should be taken seriously.
