Nearly 800,000 immigrants in Xian, home to the Terracotta Army, will be unable to buy homes after the northwestern Chinese city introduced new property curbs on Thursday, dealing a blow to the red-hot market.
The city of 10 million people has banned new immigrants from buying primary or secondary homes within 12 months of acquiring a local hukou. A hukou is a household registration document all Chinese citizens must have that controls access to public services based on the birthplace of the holder.
Previously new hukou holders could buy property immediately. Buying curbs on non-local hukou holders have also been imposed unless they can provide five years of tax proof, compared to the earlier requirement of only two years. The five-year requirement marked the strictest condition for non-locals, bringing it on par with Beijing, Shanghai and Shenzhen.
The number of people holding hukou issued by Xian swelled by 1.15 million between 2017 and 2018, after joining other second-tier cities to lure talent by greatly lowering the bar to obtain hukou, while fast-tracking it for certain categories of people who services were greatly in demand.
That inflow had bolstered demand for new housing, but at the same time some 800,000 people with hukou issued since 2018 have suddenly become ineligible to buy homes because of the new policy.
These restrictions came just two days after the capital of Shaanxi province recorded a 2 per cent month on month rise in new home prices in May, the highest among 70 cities monitored by the government. It was also the sixth straight month that Xian has seen the highest price increase across the mainland. The city has seen average prices surge 24.4 per cent in the past 12 months.
It is also among a string of second-tier cities, including Suzhou, Nanning and Dongguan that have taken steps to tame runaway land and property prices in the past month, despite a two-year campaign to curb the price inflation.
The gains in China's new home prices accelerated in May, recording a 0.71 per cent gain compared to April. Prices in second-tier cities outpaced the rest of the country, rising 0.77 per cent.
"China's 2019 housing policy will be characterised by policy fine-tuning at the city level," said Zhang Bo, chief analyst at home-listing service Anjuke. "Whenever there is an upturn the government will cool it, and whenever there are signs of a downturn, the government will put a floor."
Xian's rapid home price gains were driven by a huge population inflow because of a benign hukou policy and mild restrictions on buying eligibility.
Zhu Yu, a local housing expert and a visiting professor with Xian Eurasia University, said that because of the new policy the number of buyers will be greatly reduced.
"The products targeting the mass market will come under pressure to cut prices to push sales," Zhu said, noting that projects on the outskirts of the city with huge supply will be at greater risk.
Xian's total housing stock, including 40-year lease, will need 16 months to be cleared under the current pace of sales, but property with a 70-year lease will only need 4.5 months to be cleared, according to Meicheng Holdings, the largest property agency in Xian, noting the uneven impact on the different segments.
The average property price jumped from less than 9,000 yuan (US$1,313) per square metre in June 2017, when the rally started, to over 13,000 yuan last month, according to Meicheng.
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