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Reining in China’s real estate boom

Beijing has halted land sales in a bid to cool the housing market


 

 

Reining in China’s real estate boom

Photograph by Imaginechina/ Zuma/ Keystone

 

In the incestuous world of Chinese state-owned enterprises, there’s clearly not much stock put in clever brand marketing. Hence names like China Aerospace Industry Corp. and China Ocean Shipping—monikers that dryly convey what they do. Or used to do. Those government-owned companies and others have plunged into the red hot Chinese real estate development market. Now a bubble of epic proportions seems to be forming, and Beijing is desperately trying to rein it in.

Earlier this month officials ordered 78 state-owned enterprises to get out of the real estate game by April. Beijing has also put new rules in place requiring hefty down payments of 50 per cent for land developers. Last week the central government went so far as to temporarily halt all sales of residential land. The moves come as speculators continue to drive property values up at double digit rates in many big cities, even as tens of thousands of homes and whole apartment buildings sit empty. Houses in Shanghai now cost 90 times more than average incomes.

The $586 billion in stimulus spending Beijing injected into the domestic economy is one reason for the bubble. But the situation has been made worse since local governments, and by extension many state-run companies, now rely heavily on property sales for revenues. In fact, many local politicians are desperate to keep the boom going.

“[Beijing] has tried using standard policies like increasing taxes on land transfers to cool down the real estate markets and it didn’t work,” says Terry Sicular, an economist at the University of Western Ontario who studies China. “Now they’re trying to restrict the amount of development. It may be effective for a short time, but it doesn’t fix the underlying problems.” And that could make an already dangerous bubble even worse. M


 

Reining in China’s real estate boom

  1. Does anyone know where this picture was taken?

    • It says right under the picture. I googled imagechina/zuma/keystone and found the source in five minutes. Are your fingers broken? Did you get a relative to type the unnecessary question for you?

    • Sangya city, Hainan province, China.

  2. I think it's on a new man made island in Sanya. Released at 65,000 RMB/sq meter. Now 88000 RMB/sq meter. Helicopter pad on each roof top. Despite the price, in the first 30 minutes they sold a huge number of apartments.

  3. putting restrictions on new developments and ordering comanies to stop building would only make demand go up even more. The solution is to let chinas new prized free market capitalism fix the problem itself. If investers in china think buying an entire apartment building then not renting it is aninvestment, let them buy entire subdivisions and not rent them too. The people who will lose are the ones dumb enough to buy in. Unfortunately it drives up rents too. These "investors" are sacrificing rent revenue for percieved appreciation of the property and they will get burned. Actually the government is doing a good thing forcing huge down payments. The little people are being prevented from getting burned like so many people in america did with their dime a dozen mortgages.

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