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Nanjing Housing Policy Leading to Positive Stock Market Reponses

July 25th, 2012 by · Leave a Comment

The city of Nanjing proposed on Monday to modify housing provident fund policies and make it easier for potential home buyers to use for their home purchasing needs.

Housing provident funds, created by the government to help people buy or renovate their homes, are funded by contributions from both employees and their employers.

In the past, property developers and home sellers have preferred buyers who use commercial banks for their mortgage needs, as housing provident funds tend to take longer to process.

Over the years, these funds have been accumulating at the government commissions that manage them, as inflows have greatly outpaced outflows.

In the city of Nanjing alone, the balance of the housing provident funds has grown to 30.1 billion yuan ($4.8 billion) from 20.5 billion yuan ($3.3 billion) between 2009 and 2011, a jump of almost 50 percent in just two years.

In its effort to encourage domestic consumption, the Nanjing city government raised the maximum allowable usage of provident funds for home purchasing to 300,000 yuan ($47,619) per person and 600,000 yuan ($95,238) per household.

China’s property stocks rose on Monday to reflect the market’s optimism that local governments are doing their part to support the property market. Stocks of China Vanke and Poly Real Estate Group, the two largest property developers in China, rose 1.3 percent and 2.1 percent respectively.

The central government, however, is still concerned over the high property prices in major cities like Beijing and Shanghai, where an ordinary 600 square feet, two-bedroom apartment costs more than 2 million yuan ($317,000).

Xinhua News Agency reported last week that the land and housing ministries issued a joint urgent directive that forbade local governments from relaxing property curbs without authorization.

Since property controls are not likely to be relaxed soon, some local governments such Nanjing chose a relatively safe way to support local property market without violating central government directives. Since many local governments rely heavily on tax revenues from land sales to support spending, they are more interested in supporting the property market than the central government.

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