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Beijing must not ease its curbs on the housing sector just when they’re bitingHu Shuli urges the government to resist the pressure from interest groups to ‘save the market’, and press on with efforts to check speculation and moderate prices17 November 2011A debate is raging on the mainland over whether Beijing should ease its measures to curb housing prices.Earlier this month, Premier Wen Jiabao touched a nerve with property developers and other industry players when he said the government would not budge an inch in its measures aimed at lowering prices to affordable levels and ensuring market growth is healthy and sustainable.His words were interpreted variously by the market, but most analysts agree they mean there would be no change in the short term to housing policies, even though Beijing has talked of fine-tuning its macroeconomic controls. Developers had hoped for a repeat of the 2008 stimulus plan. On the contrary, there should be no let-up. The controls are starting to bite; it’s a critical stage that will determine whether, ultimately, they succeed. Beijing must resist pressure from interest groups to “save the market”, and even expand its efforts, to put property development back on a healthier growth path.The industry is feeling the pain. First in major cities then the rest of the country, developers are cutting prices to boost sales. Property watchers say the industry has reached a turning point: the volume of transactions has fallen in many cities and, in some areas where prices have plummeted, some buyers have backed out of deals and property sales offices have been vandalised. At the same time, real estate agencies are folding one after another, developers are running out of cash, investment in property is thinning, demand for construction materials has weakened and the land market is also cooling. Local government revenues, which depend heavily on land sales, have also shrunk. Amid the gloom, it’s not hard for groups to justify lobbying authorities to ease off.Such market contractions aren’t new. Since 2003, the government has repeatedly introduced different measures to try to rein in prices. It set new rules on the bidding, auction and listing of land; it curbed land supply; it launched plans to build housing for sale and rent for low-income groups; it even at various times abolished the preferential lending rates, raised the down-payment ratio, raised interest rates, and imposed taxes such as one on secondary market sales. But, despite such measures, prices only rose. The effect of the 4 trillion yuan stimulus in 2008 (HK$4.5 trillion at exchange rates then) was especially damaging; it made available a flood of credit to cash-strapped developers to resume speculating. Clearly, taking the foot off the brake was a mistake.This time, the government has, to its credit, stood firm. But the more the controls work, the louder the cries to relax them, and the more pressure the government will face. Will it buckle eventually? It must learn from the past. Only when the root factors that drive speculation are removed can the industry develop in a strong, sustainable and balanced way.But not easing controls does not mean merely ratcheting up price control. For the policies to be considered a success, not only should prices come down to affordable levels, but the market itself should be rid of distortions. The ultimate aim isn’t to force developers to cut prices, because if the market’s deep-seated problems are not corrected, a band-aid curb will only cause prices to fall temporarily, before rebounding with a vengeance. Property developers who went bankrupt will only be replaced by new sources of hot money, and the goal to improve people’s living conditions will recede further.The measures should aim for breakthroughs in three areas.
First, we must build a rational and sustainable market that answers people’s housing needs. Systems should be set up to facilitate the flow of information about properties nationwide and data on personal credit and income. Based on these, market transactions can take place. At the same time, long-term planning for subsidised housing projects should be based on facts, not political slogans, to avoid the astonishing waste that comes from building homes that do not match demand. China should also study the experiences of other countries in managing housing for low-income earners.Second, a healthy, regulated residential rental market is sorely needed to balance housing demand and supply. Developing one should be a top priority of housing authorities. In a time of rising prices and soaring rents, the government must step up its efforts to improve its regulatory framework for the lease market, clarify its policy objectives and directions, draft the necessary laws, and encourage more people to become tenants in a society that traditionally values home ownership.Third, we must pare down local governments’ reliance on land sales for revenue. They are the biggest beneficiaries of high housing prices - the reason central government controls don’t work. For a start, a property tax is being imposed in some places as part of wider efforts to improve land management and public finances in urban and rural areas. Pilot initiatives to rationalise local government debt are also being carried out.Ultimately, local governments must widen their revenue sources and cut expenditure. Public finances should be more transparent, and decision-making more democratic.These reforms would provide substance to the government’s resolve to budge not an inch on its housing control policies.This article is provided by Caixin Media, and the Chinese version of it was first published in Century Weekly magazine.
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