By Langi Chiang and Jason Subler
BEIJING (Reuters) - China's plans to curb property speculation are likely to be more bark than bite, and markets have over-reacted because of the uncertainty over how local governments will implement measures including a 20 percent capital gains tax on house sales.
Investors took fright this week over the potential impact of the tax - which has been in place for almost two decades but never strictly enforced - hammering shares of big property development firms such as China Vanke, Poly Real Estate, China State Construction Engineering and China Resources Land.
Nervous homeowners have rushed to finalize sales, hoping to cash in on apartments before the rules take hold, and there were angry comments on microblogs, illustrating the level of sensitivity to any attempts to cool prices in a country where so many people have much of their wealth tied up in property.
But local governments, expected to act by the end of next month on the plans announced on Friday - just days ahead of the formal transfer of power to new leadership in the world's second-biggest economy - are likely to temper Beijing's attempts to take the steam out of rampant property speculation.
Chinese tend to park much of their wealth in bricks and mortar as they have few other alternative investment options, and the authorities are alive to the risk of destabilizing the Communist Party's rule through mishandling the property markets.
While the State Council, China's cabinet, wants to clamp down on housing speculation - home prices in the 100 biggest cities rose for a ninth straight month in February - it is giving cities more leeway to take charge of local markets.
"The market always over-reacts when new rules are announced because of uncertainties and misinterpretation," He Qi, vice chairman of the China Property Society in Beijing, told Reuters, noting Beijing was handing responsibility for checking house inflation to provincial governments which would, in turn, oversee the cities under their jurisdiction.
"That means policies will be quite different in cities with (housing) over-supply and those with short supply," he added.
Real estate and credit experts predicted the measures - which also include higher down payments on homes and increased mortgage rates - would do little to harm the homebuilding industry or dampen enthusiasm among those first-time buyers Beijing is keen to encourage.
"We don't see the new policy will have a particularly huge impact on the industry," Standard & Poor's credit analyst Bei Fu told Reuters. "It targets speculators, but the market recovery since last year is driven by self-user demand."
As long as China's economy keeps growing at a steady clip - outgoing Premier Wen Jiabao on Tuesday targeted 2013 GDP growth of 7.5 percent [ID:nL4N0BX03T] - families would be able to afford the added costs to buying a home.
PROPERTY SHARES EDGE UP
Shares in listed Chinese property companies nudged up 0.6 percent on Tuesday after slumping more than 9 percent a day earlier - their biggest drop in nearly five years. But the new property policy was still the hot topic on social media, with any strict implementation of the capital gains tax expected to push up house prices.
"Ordinary people across the nation cried ... governments, developers and rich people laughed aloud," wrote one Weibo account under the name Raoshan Feihong.
Analysts expect the impact of the new policy to hit smaller homebuilders harder than their bigger peers, further polarizing an industry that looks set for more consolidation.
"The new regulations will disproportionately affect smaller players with lower margins, with projects targeting speculative buyers or with high concentration in cities which are targeted for stricter policy implementation," Fitch Ratings said.
Kong Qingping, vice president at China State Construction Engineering, the country's biggest construction contractor, told reporters on the sidelines of the National People's Congress - the annual 2-week gathering of parliament that began in Beijing on Tuesday - that the new policy "will curb market demand, but our company will have no problem."
WAITING FOR DETAILS
While incoming Premier Li Keqiang has yet to declare the new government's stance on the property market, the effectiveness of the latest measures will be determined by how local governments interpret and implement them.
"It's a Chinese practice that central government will keep orders vague, giving local officials big room (to implement them)," said Wei Yao, China economist at Societe Generale CIB, suggesting some local authorities may be more lax than others in enforcing the rules.
The 20 percent capital gains tax, for example, could be waived or much reduced through loopholes in collection, Ting Lu, chief China economist at Bank of America-Merrill Lynch, wrote in a March 3 note. The tax has been largely ignored for years, with buyers instead opting to pay 1-3 percent of the gross transaction value.
Jia Kang, head of the finance ministry's research think-tank, predicted the capital gains tax could be a short-lived policy, noting that people owning homes for more than 5 years may be exempted.
"Many of the new rules need detailed explanations," he said.
(Additional reporting by Xiaoyi Shao, Sally Huang and Jenny Su; Editing by Ian Geoghegan)