The PRC government announced that it may introduce more austerity measures towards the property sector given higher expectation of property price hikes. The purpose is to stabilize property prices. The major proposals include:
1) Down payment for a second home could top 60% of the property price. For cities with over-heated property markets, mortgage rate for second homes is likely to rise from 1.1x of the benchmark rates.
2) Property buyers face a 20% capital gains tax when they sell.
3) Increase housing and land supply. Ensure land supply in 2013 not less than the average of the past five years. Cities with higher property price hike pressure have to further increase the land supply.
4) Speed up construction of affordable housing (保障房). For 2013, the target for new affordable housing supply is 4.7M units. 6.3M of new units will also start construction.
Following the government’s austerity, we expect 2Q13 property transactions to be lower than 1Q13. Property prices should also stabilize, or see their price increases slow down.
At current share price levels, with the government showing more intention to fine tune the property market, we maintain our cautious view on the PRC property sector. Exposure in the sector should be under control.