OREANDA-NEWS. China's three megacities - Beijing, Shanghai and Shenzhen - are localising housing policies to manage speculative demand and rising housing prices because of market dynamics peculiar to each city, Fitch Ratings says. These cities differ in terms of land supply situations in their many districts and the rate of the geographical expansion. Furthermore, property market conditions in neighbouring cities also influence the markets in these cities.

BEIJING
Fitch believes that stronger home-purchase restrictions, if implemented in Beijing, will aim to curb speculative demand. We think Beijing's housing policy will generally support an expanding housing supply in the Beijing metropolis area while keeping housing prices stable, with increases at no more than a single-digit pace.

Beijing has been expanding its borders by incorporating outlying villages. This expansion adds to its core housing supply even as its resident population grows. Suburban housing is therefore important to help meet residents' housing needs, and speculative demand for these properties will be more likely to attract policy intervention. Furthermore, Beijing's long-term plan in expanding the Beijing-Tianjin-Hebei economic zone can offer the municipal government more flexibility in its population and housing policies.

SHANGHAI
The Shanghai government on 25 March unveiled housing policies that favour owner-occupiers over investors. Measures include a more stringent definition of local residents who qualify for unrestricted home purchases, as well as heftier down-payment of up to 70% to purchase a second home. Shanghai's housing policy will continue to encourage home ownership by supporting first-home purchases for its residents.

The Shanghai metropolis area is at the centre of the affluent Yangtze River Delta economic zone, where Zhejiang and Jiangsu have the highest per capita GDP among the provinces. Although housing supply has been ample in this economic zone at the start of 2015, destocking has been rapid and this may have driven investment demand from this region towards Shanghai. Furthermore, there are more constraints on geographical expansion for Shanghai than for Beijing, even though Shanghai has urban redevelopment as well as other land supply options within the metropolis. These options often require more time for land supply to come on-stream.

SHENZHEN
Fitch believes that housing policies in Shenzhen aim to encourage financial prudence among buyers because reduced affordability after a 50% increase in home prices in 2015 would have dampened housing demand. The Shenzhen government also announced on 26 March a more stringent definition for local residents who qualify for unrestricted home purchases and raised the mandatory down-payment to 40% from 30% for second-home purchases. Fitch believes the Shenzhen municipality may have to implement policies to curb housing demand to prevent further property price increases, given the city's limited land supply. High property prices may hurt the municipality's economic competitiveness.

Shenzhen housing prices will face downward pressure because they have risen significantly relative to neighbouring cities like Dongguan, Huizhou and Zhongshan within the Guangdong Province; or even compared with Hong Kong in its south. Highly industrialised Shenzhen is reliant on redeveloping factory sites to supply more residential land because it is hemmed in by four other cities. However, this process is slow as it requires industry restructuring. Its higher population density of 5,300 per square kilometre in 2013 compared with 3,800 for Shanghai in 2014 also means the Shenzhen government has less flexibility in managing land supply.