With the annual sessions of NPC and CPPCC approaching, as a National Committee Member of the CPPCC, I regard the submission of a good quality proposal as an important element of carrying out my duties. My proposal last year, “Protecting the Financing Interests of SMEs amidst Policy Tightening”, was listed as one of the key proposals for the CPPCC National Committee. The other proposal, “Lowering Tariffs for Luxury Goods to Keep Consumption in the Domestic Market”, resulted in strong reactions, and MOFCOM leaders have responded favorably during the annual sessions of NPC and CPPCC. It’s a pity that this proposal has yet to be implemented.
For this year’s proposal, I’d like to focus on one major issue. The control of the real estate industry is a major concern for governments at different levels, companies, and various groups of people. This round of control has lasted for two years. As governments at different levels carry out administrative measures such as limiting purchases and loans, speculative and investment activities basically vanished, and property prices stopped soaring (they have indeed declined month-on-month for many months). The growth in property investments has largely decreased, and the control has achieved certain desired objectives. This round of control has a new special character, which is that welfare housing has been lifted to an unprecedented level, clearly highlighting the objective to safeguard the welfare of people. However, is welfare housing the only way for the control policies to protect the livelihood of people? I don’t think so. I think we should also find ways to benefit the middle-class residents.
The target of the welfare housing plan proposed by the government is to solve the housing problems for 20% of the lower-income group in the next five years. This means that there is a larger group of middle and low-income residents in the cities that still do not have access to welfare housing, who can only fulfill their housing dreams through the commodity housing market. This year, the government proposed a new slogan to “drive the housing prices back to their reasonable levels”. It seems that the extent of price declines will become the benchmark to measure the success of the control policies. However, the current problem is that even if the average nationwide property prices were to fall by around 20%, regular residents would still not be able to benefit.
According to the 2011 data released by the NBS, the nationwide average property price last year was Rmb5,380 per square meter. Assuming 100 square meters per new commodity housing unit (In 2011, the average floor area for commodity housing in Beijing was around 105 square meters, and the rule of thumb is that the lower the prices, the higher the area per unit), if the nationwide property prices were to decrease by 20% on average, each household could save Rmb107,000 on housing expenditure on average. However, due to the control policies, commercial banks have abolished the previous 30% discounts on mortgage loan interest rates for first-time home buyers, and some even raised their interest rates above the benchmark rate. Even after the recent minor policy revisions, the mortgage rates are still at the benchmark rate. Compared with the home buyers before the property controls were implemented (who enjoyed 30% discount on mortgage rates), first-time home buyers today will have to pay around Rmb100,000 more in mortgage interests (assuming 100 m2 per unit and 10-year mortgage with 80% LTV ratio at the benchmark rate), , which will completely offset the benefits of the 20% decline in housing prices. If the average loan period is 15 years, Rmb130,000 more interest will have to be paid, ironically increasing the burden of the residents.
For this round of macro control, among governments, companies, the public and banks, who are competing for a bigger share of the pie, the first three groups are losers, and only banks are the winners. To safeguard public welfare, besides building more welfare homes, the current credit policies have to be changed - the 30% discount on mortgage loans should be reintroduced for first-time home buyers and first-time upgraded housing buyers (who buy a new commodity housing unit after selling their previous ones). By doing so, property control can benefit the middle-income, middle-to-low-income and low-income groups, encouraging more people to support the macro-control policies. Therefore, during this year’s session of NPC and CPPCC, my proposal will be “to reintroduce the 30% discount on mortgage loans for first-time home purchases or first-time home upgrades”.