💾 Archived View for gmi.noulin.net › mobileNews › 4698.gmi captured on 2021-12-03 at 14:04:38. Gemini links have been rewritten to link to archived content
-=-=-=-=-=-=-
Soaring house prices continue to pose a political problem for China s leaders
May 4th 2013 | SHANGHAI |From the print edition
ASK ordinary people about their own Chinese dream, and you find owning a home
is high on the list. But years of rising house prices have put that dream out
of reach of many. A slowing economy appeared to take some of the heat out. Now,
alas, the residential property market is soaring again (see chart). A new
survey of developers and property firms on May 2nd showed average house prices
up more than 5% in April on a year earlier.
Taking the long view, rising property values seem defensible. The country is
undergoing the largest wave of urbanisation in human history and homes must be
built for all of those new city dwellers. The existing housing stock is poor,
so people upgrade to modern homes as soon as they can afford them. Local
governments earn a lot of money from land sales to developers and investors
have few other places to park their money. All that suggests upward pressure on
prices is not going away.
But even if you accept those long-term arguments, says Alistair Thornton of
IHS, a consultancy, the market right now looks increasingly as if it is
becoming detached from the fundamentals, as speculators looking for an
investment swamp buyers looking for somewhere to live. Many flats sit vacant
despite legions of prospective buyers desperately seeking affordable housing.
Capital Economics, a research firm, estimates that investment in residential
property accounted for 8.8% of China s GDP in 2012.
The alarm bells are being rung in unexpected quarters. Wang Shi, the
charismatic boss of Vanke, China s biggest property developer, would seem to
have more to gain than most from further price rises, yet he too warns of a
looming disaster. The plunge in prices that would result from a pricking of
this bubble, he declared on 60 Minutes , an American television programme,
could lead to popular protests on the scale of the recent Arab uprisings.
China s new leaders are keenly attuned to such concerns and are trying hard to
head off the danger. The ruling State Council and the country s central bank
have issued numerous decrees in recent weeks designed to dampen the market and
to crack down on speculation. Among these are larger down-payments and higher
mortgage rates for people buying second homes and a reminder to local
governments that a 20% capital-gains tax on second-home sales must be enforced.
But plenty of central-government edicts are ignored. The capital-gains tax on
resales, for example, was only rarely levied in the past. Ren Zhiqiang, boss of
Hua Yuan Real Estate Group, another property giant, recently denounced the
country s policies. The central government s message to local officials, he
claimed, could be described as: We hope prices won t continue rising; you go
and fix them; and if you don t fix them, we will punish you.
Most local officials do not want to implement such curbs with any rigour. On
the contrary, encouraging a property boom keeps much-needed tax revenues
flowing and puffs up the local economic growth figures on which their chances
of promotion hang. This misalignment of incentives, argues Mr Thornton,
explains why it s always a cat-and-mouse game between local and central
authorities .
Clearing up this mess will be difficult, but not impossible. A good start would
be to introduce a property tax, imposed annually, that is based on the market
value of a home. That would reduce speculation, discourage owners from holding
empty flats and provide a fresh source of funding for cash-strapped local
governments. That should reassure officials whose path to the senior ranks of
the party is connected to their ability to enrich their districts (and perhaps
themselves) along the way.
The perverse incentives the party clings to and the absence of policies to
discourage speculation often end up crushing the dreams of would-be home
owners. The solution probably starts with the central government recognising
that local officials have their dreams, too.
From the print edition: China