Researchers and property developers in China have cast doubt on speculation that the central government may eradicate the presale system for housing units and start a sweeping collection of housing tax, according to media reports.

They brushed aside earlier market speculation which battered share prices in the property sector by almost 5% to drag the Shanghai Composite Index to close to 2,100 points on Aug. 2.

The housing presale system is crucial to property developers as it allows them to collect money from apartment buyers ahead of construction or completion of the housing projects. The advance-sale practice helps alleviate the financial burden for developers. But it can also prompt them to hoard housing units and fan anticipation for further rises in property prices.

Chinese media speculated that the reports concerning the central government's new plans for the real estate industry could have been triggered by professor Song Guoqing at the National School of Development of Peking University. Song concurrently serves as a member of the Monetary Policy Committee at the People's Bank of China, the central bank. Song categorically denied that he was the source of the speculation.

Others traced the rumors to a recent report from the Chinese Academy of Social Sciences, a government thinktank, that suggested the government abolish the presale system "at the proper time." Song had also mentioned such a proposal in a recent speech, according to news reports on the internet. The reports even mentioned that Beijing could be the first test area for the pilot plan.

Executives at property developers poured cold water on the rumors however. Ren Zhiqiang, chairman of Huayuan Property, ruled out the possibility of eliminating the practice, while Tan Huajie, board secretary at China Vanke, said he could not understand the talk about a possible scrapping of the system and the steep fall of property shares. He and executives at Poly Real Estate Group all said they have never heard of such government plans and it would be impossible to do away with the presale system for now.

Wang Jianhui, vice president of research at Capital Securities, also said it is unlikely the government will abolish the practice. But there is a possibility of conducting a pilot scheme in major cities like Beijing where their incomes do not account for a high proportion of local revenues while the central government can maintain direct and firm control over what happens in the capital.

Even if Beijing undergoes the trial scheme to do away with the presale system, there would be no impact on transactions of previously occupied houses. But property development companies concentrating on building new apartments with high debts but weak fundraising capability will be dealt heavy blows, he said.

There has been persistent speculation over the last two years regarding the implementation of a possible across-the-board housing tax nationwide, but the market generally does not see such a possibility, said Hu Zhigang, vice chairman of the China Real Estate Research Association.

Several cities have tried to use a housing tax to help rein in property price increases, but the results in major cities like Shanghai and Chongqing have not been satisfactory so far, he said. Most realty industry analysts hold the view that there is still a need for further study and research on this issue, he added.

References:

Song Guoqing 宋國青

Ren Zhiqiang 任志強

Tan Huajie 譚華傑

Wang Jianhui 王劍輝

Hu Zhigang 胡志剛