In a bid to cool down the country's overly hot property market China's State Council has agreed to significantly tighten the rules regarding mortgage down payments and housing transactions. 

According to a statement issued by the State Council yesterday from June 1 the minimum down payment for a new apartment larger than 90 square meters will be raised from 20 to 30 percent.

The payment for an apartment smaller than 90 square meters will remain unchanged at 20 percent to cater for "the needs of middle and low income groups," the statement said.

In another significant move a transaction tax will be imposed on people attempting to sell on their properties within five years of purchase. The current period is two years. The tax rate will remain unchanged at 5.5 percent of the sale value.

This move, also effective June 1, is aimed at "curbing speculative and investment-oriented housing demand," according to the statement.

"The transaction tax will certainly do something to combat investment-oriented housing demand although it will depend on how effectively the new rules are enforced," said Wang Deyong, a real-estate industry analyst with CITIC Securities.

"This tax on sales of second-hand houses, together with other measures in the State Council statement, are likely to have an impact on the market but it won't be dramatic," said Richard Wang, associate director of the Consultancy and Research Department with global real-estate advisor DTZ's Beijing office.

However, for high-income earners the down payment increase may not be a major deterrent.

"It will have little, if any, impact on my home-buying plan," said Zhao Guocheng, 28, an Internet service company employee in Beijing.

"If it were raised to 50 percent, as was rumored one week ago, then I would have to rethink my purchase plan," he said. "Perhaps I would have to work hard for many more years to buy a flat."

Earlier, in an executive meeting chaired by Premier Wen Jiabao on May 17, the State Council vowed to use a mix of tax, credit and land policies for this purpose.

The State Administration of Taxation also issued a directive on May 19 reiterating its call on local governments to impose a 20 percent capital-gains tax on sales of second-hand properties which requires sellers to pay 20 percent of any profit from housing sales as tax.

Property prices in China's major cities have soared in recent years which have raised concerns about a market overheating. 

In the first quarter this year housing prices jumped 15 percent in Beijing and 35 percent in Shenzhen, a booming city in Guangdong Province.

The latest moves, which also cover bank lending, are "the most detailed policies that the government has ever taken towards the housing market," said an executive with a Beijing-based property developer who wished not be named,

"It may make life harder for the less competitive and smaller developers but it will not have much impact on the strong and competitive players," he added.

The statement also called for strengthened supervision on land used for housing developments.

A policy has been issued which requires that developers of land slated for development be charged a high "idle land fee" if it remains unused for one year while rights would be revoked if it remained unused for two. 

The State Council paper also asked local governments to make 70 percent of its annual land supply available for the development of low-cost housing.

"The land supply policy may be the most effective way to rein in surging property prices," said DTZ's Wang. "The land market should be better regulated. In some places the land auction floor price offered by local governments is too high which inevitably pushes up prices," he said.

(China Daily May 30, 2006)