Shanghai lottery to help ensure 'fair distribution' of homes

Shanghai will introduce a lottery system for sales of new residential projects as demand is overtaking supply, according to a circular of the city's housing authorities.

The lottery will guarantee "transparent and fair distribution" of homes and is part of the city's measures to curb speculation in the housing-market.

Shanghai's housing regulator also says real estate developers, agents and sales companies are forbidden from getting involved in speculative home sales.

The authorities concerned will blacklist companies and individuals that violate the rules.

Property companies and agents need to carry out only genuine, verifiable deals and prevent transactions involving fictitious names aimed at circumventing purchase limits, says the circular, which was issued late on May 4.

Analysts say the lottery system will benefit buyers of smaller, lower-priced properties that are in limited supply and hence in high demand.

The lottery system also requires that transactions be notarized to ensure fair and transparent distribution of market-oriented housing projects.

The lottery system has been widely applied already in the distribution of subsidized government housing for lower-income families and low-rent houses.

"When supply (of new homes) doesn't meet demand, a notarized lottery system will work better than any other system. Unnotarized lottery systems used to lead to underhand dealings in the past, and scalpers would enter the market to resell home purchase qualifications. Now, the new system will maximize protection for homebuyers," says Yan Yuejin, a senior researcher with the E-house China R&D Institute.

Zhang Dawei, chief analyst with Centaline Property, says the lottery system supplements existing home purchase restrictions in Shanghai. It is likely to be adopted by other cities facing similar supply-demand mismatches.

Shanghai's new homes inventory by the end of April stood at 6.28 million square meters, which would be absorbed by the market in nine months if there were no more supplies, E-house data showed.

In Shanghai, stricter limits have been imposed on homebuyers' qualifications and down payment requirements to stabilize prices.