Quitting the Quota
Rather than rely on unsustainable quotas to curb exorbitant demand for property and cheap credit, China’s leaders must address its root cause – the low cost of capital. This will require China to raise interest rates to market-clearing levels, while maintaining some capital-account control.
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HONG KONG – On March 1, China’s State Council announced a new batch of restrictions aimed at reining in property prices by curbing speculative demand. The measures include tighter limits on home purchases by non-locals in cities with excessive price gains, a reinforced 20% capital-gains tax, mandatory 70% down payments, and a 30% benchmark interest-rate premium for second mortgages.