Chinese City Moves to Ease Property Policy
By ESTHER FUNG And SHEN HONG

SHANGHAI—An industrial city in eastern China is offering residents subsidies and tax waivers for home purchases, in the latest instance of property-policy easing on the local level despite Beijing's tightening policy.

China's top leaders have said they will stick to their two-year-long property-tightening campaign, though expectations of various forms of easing have surfaced after the Chinese central bank said Tuesday it will support financing for social housing projects and first-time home purchases.

It remains unclear whether move by the city of Wuhu has the central government's blessing but analysts said the city's measures, which were designed to support purchases of smaller-size apartments and property for self-use only, have the potential to be replicated by other cities.

In a statement issued Thursday, Wuhu's municipal government said it is providing a 150 yuan-per-square-meter subsidy for new homes with a floor space of less than 70 square meters and a 50 yuan-per-square-meter subsidy for new homes between 70 and 90 square meters.

The city will also offer subsidies for home purchases by professionals with high qualifications ranging from 100 yuan to 300 yuan per square meter, the Wuhu government said, adding the measures took effect Jan. 1 and will last until the end of this year.

Wuhu will also waive a tax on property transactions—the "deed tax," which is typically 1%-2% of a home's value—for home purchases, including homes in the secondary market.

All the measures are applicable to homes bought for self-use, not just first-time home purchases, the city government said.

Homebuyers who benefit from the subsidies and sell their homes within three years after registering the purchase will have to refund the subsidy and tax waiver to the government.

"Wuhu's policy move hints at the urgent need of local governments to support the property market and the economy. Hence, we believe relaxation by local governments is a trend, and it could be moving more quickly than expected," said Johnson Hu, an analyst at CIMB Securities.

Faced with a slowing economy and persistent inflationary pressures, Beijing is in a bind regarding its policies for the property sector, a major growth engine but also historically a source of social grievances and instability.

Income from land sales and property transaction-related fees has traditionally been a major source of revenue for local governments in China.

Housing sales in China have plunged in recent months as home buyers have taken to the sidelines in anticipation of further declines in prices thanks to Beijing's tightening campaign.

The average sale price of homes in Wuhu city was 5,567 yuan per square meter last month, down 0.25% from a month earlier and 5.7% from the same period a year earlier, according to private-sector data provider, China Real Estate Index System.

Stirring hopes that some forms of policy easing could be on the way, the People's Bank of China said Tuesday it will continue its policy of setting differentiated terms for mortgage loans this year while also strengthening support for the construction of affordable and public housing.

The central bank said it will support the construction of ordinary commercial houses and satisfy the demand for loans among first-time home buyers.