On April 17, 2010, State Council issued a Circular on Resolutely Curbing the Housing Prices in Some Cities from Rising Too Fast (Guo Fa [2010] No. 10) (the “Circular”) in yet another effort to curb the rising prices of residential properties in China.

Highlighted below are the key measures of the Circular:

Down Payment and Residential Mortgage Lending Rates

The Circular has increased the requisite down payments on residential units as well as the minimum interest rates chargeable on second homes as follows:

  • minimum down payment for the first house or apartment purchased by a family for self-occupancy that is no larger than 90 square meters in size is 30 percent of the purchase price;  
  • minimum down payment for a second house or apartment (determined on the basis of a family, not as to the individual buyer) that will be financed with a mortgage loan will be 50 percent, regardless of the size of the house or apartment;  
  • the interest rate on all mortgage loans taken out to finance second homes must be no less than 1.1 times of the applicable benchmark interest rate announced by the Chinese central bank from time to time; and  
  • if a family purchases a third home, the down payment and the mortgage interest rate will be raised substantially. Banks may suspend issuing mortgage loans for a third home depending on the risk profile and may also suspend offering mortgage loans to purchasers who are not local residents and cannot provide local tax payment certificates or certificates of social insurance payments.

Taxation of Capital Gains on Residential Housing

The Circular states that the Ministry of Finance and the State Administration of Taxation should accelerate their efforts in drawing up taxation policies on residential properties. One possible tax policy that is a subject of heated debate currently is the introduction of property tax. Such a measure, if introduced, is expected to make a huge impact on the market, but it remains to be seen whether the introduction of tax measures would be necessary or whether the Circular would have the desired effects of cooling down China’s residential property market.

Please refer to the full text of the Circular via the Chinese language link: http://www.gov.cn/zwgk/2010-04/17/content_ 1584927.htm