Business

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