(Yicai Global) July 31 -- Shares in Chinese real estate firms surged today after three of the country’s four first-tier cities, namely Beijing, Shenzhen and Guangzhou, expressed support for the central government’s plans to roll out policies to aid home buyers.

Ten developers, including Huayuan Real Estate and Shanghai Industrial Development, saw their share price leap by the exchange-imposed limit of 10 percent. Huayuan’s stock [SHA:600743] closed at CNY2.15 (USD0.30) while Shanghai Industrial [SHA:600748] finished the day at CNY5.07.

And the Shenwan Real Estate Index, which tracks the performance of developers listed in Shanghai and Shenzhen, rose sharply by 2.8 percent to hit a five-month high. The index has rebounded by around 17 percent in the last two weeks after being on a downward trajectory for the past seven-and-a-half months.

Beijing, Shenzhen and Guangzhou will bolster local demand for properties, real estate authorities in the municipalities said on July 29 and July 30. But specific details of how this will be achieved have yet to be released.

The three megacities will take into account the actual situation of the local real estate market to promote its stable and healthy development. This includes supporting the rigid and increased need for housing by residents, they said.

Targeted Approach

Hotspot cities, such as the first-tier cities, need “targeted support to boost housing demand,” Li Yujia, chief researcher at the Housing Policy Research Center of the Guangdong Rural & Urban Planning and Design Institute, told Yicai Global. This should be the focus of any market optimization policies.

Many people living in first-tier cities want to purchase new homes. The rollout of supportive measures, such as lowering interest rates, reducing downpayments and cutting taxes, can boost market expectations and release demand, Li said.

Policies should be implemented according to the specific needs of each city, rather than umbrella policies with the same content, he added.

At present, first-tier cities have strict curbs on the purchase, taking out loans, sale and pricing of real estate. Locals are restricted from buying more than one home, and people from outside of the cities are at a disadvantage in terms of their eligibility, loan interest rates and down payment amounts.

“While these policies aim to limit speculative behavior, they also significantly restrict legitimate housing demand,” said Chen Wenjing, research director of the China Index Academy. “It is important for policies to be adjusted as needed to support demand, stimulate the second-hand housing market and invigorate the market.”

Pre-owned home sales in first-tier metropolises have been sliding and yet the number of properties listed has been on the increase. Even cities that usually have no shortage of buyers, such as Beijing, are affected. In June, online transactions of pre-owned homes in Beijing tumbled 16.6 percent from April to 11,607 units. While the number of listings of used properties in the capital surged to nearly 200,000 units as of the end of June.

To help reduce the cost of buying a home, Li suggested that down payments for home owners who wish to buy a second property and have finished paying off their first one, could be reduced. And the period before VAT exemption applies to home buyers could be shortened to two years from five years.

Editor: Kim Taylor