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Several government departments released a joint circular to control borrowing by local governments, which is the first policy involving the real estate market in the new year.
The Ministry of Finance, the National Development and Reform Commission, the People’s Bank of China and the China Banking Regulatory Commission jointly released the circular on January 2, which states that local governments are prohibited from obtaining loans using land reserves as collateral, or using such loans for urban construction or for purposes other than land reserve businesses.
Behind the policy is a struggle among various interests and even some compromise since the strictly regulated real estate market was showing some signs of an upswing at the end of 2012.
According to figures from the Beijing Municipal Commission of Housing and Urban-Rural Development, 260,000 flats (excluding government-subsidized ones) were sold in 2012, surging 67 percent compared to 2011.
Figures from the Shanghai Urban Construction and Communications Commission showed that in December 2012, 1.1 million square meters of commercial apartments were sold, the highest number in 23 months.
As transaction volume expands, property and land prices were also growing. Property developers are increasingly enthusiastic about bidding for land. For example, in land auctions held in Beijing in December 2012, land prices hit a new record high. Many foreign investors that once retreated from China begin to return. Stock prices of listed Chinese real estate developers are going up.
Is this a temporary rise, or does it indicate a rebound of China’s real estate market in 2013? Will the Central Government create stricter policies to curb price hikes in the real estate market?
Leaders at the Central Economic Work Conference held in mid December 2012 decided to firmly continue macro-control of the real estate market, setting the tone for 2013.
Zhang Dawei, Director of Market Research at Beijing Centaline Property Co. Ltd., said the Central Government further enhancing regulations of the real estate market indicates that the industry, after two years of adjustment, is still far from the government’s target.
Housing prices are still much higher than what the public can afford, and market speculation has not been thoroughly uprooted, said Zhang. Policy in 2013 will focus on making prices more reasonable.
Yi Xianrong, a researcher with the Institute of Finance and Banking at the Chinese Academy of Social Sciences (CASS), said in 2013 the biggest difficulty in macro-control of the real estate market may be urbanization. The Central Economic Work Conference concluded that urbanization has the biggest potential to expand domestic demand and the country will actively and steadily push it forward as the Central Government’s focus in 2013. However, while Yi believes urbanization will stimulate investment, it doesn’t necessarily mean real estate alone can advance urbanization. It will be an enormous test for the Central Government to control the real estate market while promoting urbanization.
When urbanization becomes the growth point for the Chinese economy, enhancing regulations of the real estate market and improving housing for the low-income groups should be prioritized, thus avoiding a rush investment in real estate and preventing an overheated market from adversely affecting economic development. “Amid the process of urbanization, macro-control of the real estate market should continue to be strict,” Yi said.
Unclear tendency
The Central Government began limiting home purchase in 2010 and continued to tight regulations in 2012.
According to the Green Book of the Housing Market released by the CASS on December 13, 2012, the government only curbed rapidly growing housing prices in 2012, but did not realize the optimal goal of making prices more reasonable. “The tendency that various indicators in the housing market have risen recently merits vigilance,” says the green book.
It stressed that when housing prices in most cities rise moderately, local governments will relax their control and bring the risk of rapid price hikes once more if the Central Government does not implement effective control measures.
In those cities with real estate bubbles, the withdrawal of investment and speculators will cause the collapse of the market.
Across the country, the demand for improving housing conditions will grow stably in 2013, and growth in first-tier cities will be faster than in second- and third-tier areas, according to the green paper.
Ni Pengfei, Director of the Center for City and Competitiveness of the CASS and the green paper’s chief editor, said local governments are still highly dependent on revenues from selling land.
In 2012 China’s fiscal revenue totaled 10 trillion yuan ($1.59 trillion), of which more than 20 percent came from land sales. The Central Government’s control of the real estate market has reduced fiscal revenues of local governments. Therefore they are increasingly motivated to rescue the real estate market and implementation of tighter macro-control policies has relaxed. This may also cause a rebound of the market.
However, many people take a gloomy view. Xia Bin, a researcher at the Development Research Center of the State Council, believes the Chinese economy will still try to balance stable growth and economic restructuring in 2013, therefore a rebound should not be expected. According to Xia, the global economy is still gloomy and China’s exports are facing heavy pressure. Moreover, the government-led investment pattern is unsustainable, so economic difficulties will continue to exist. Judging from present economic growth and the real estate market, macrocontrol policies are unlikely to stop.
Independent economist Xie Guozhong thinks a recent recovery in the real estate market is not a true rebound, but the beginning of another bubble. “Sell your empty houses as soon as possible,” he writes in his blog.
Relax or tighten?
Real estate market control is sure to continue this year and it’s unlikely to be relaxed, but will it be further tightened?
Ni said that control policies of the market will face difficulties in 2013.
First, recovery in the global economy is slow, which is not good for China’s exports. Since many countries chose to ease their monetary policies, China faces growing potential of imported inflation. Moreover, international speculative capital is casting its greedy eyes on China’s real estate market.
Second, domestic economy lacks growth momentum. Except for government investment, consumption and private investment are growing weakly. If external demand falls and growth in government investment is unsustainable, macroeconomic growth will become unstable, hence affecting the macro-control of the real estate market.
Third, local governments are short of money. Since different local governments face different conditions, it is hard to formulate a singular policy.
At the National Housing and Urban-Rural Construction Conference held in Beijing on December 25, 2012, Jiang Zengwei, Minister of Housing and Urban-Rural Construction, emphasized that differentiated housing loans, taxation policies and limits on home purchases will continue in 2013 in an effort to curb speculative home purchases.
The government will continue to build up an individual housing information system. Moreover, 6 million homes for low-income groups will be built.
Zhang said the Chinese economy is now experiencing restructuring and economic growth is slowing down, hence it is unlikely for real estate regulations to change. During the country’s leadership transition in particular, regulations should be stable. To maintain stability, administrative measures such as limits on home purchases and housing loans will unlikely be relaxed in the short run.
The Ministry of Finance, the National Development and Reform Commission, the People’s Bank of China and the China Banking Regulatory Commission jointly released the circular on January 2, which states that local governments are prohibited from obtaining loans using land reserves as collateral, or using such loans for urban construction or for purposes other than land reserve businesses.
Behind the policy is a struggle among various interests and even some compromise since the strictly regulated real estate market was showing some signs of an upswing at the end of 2012.
According to figures from the Beijing Municipal Commission of Housing and Urban-Rural Development, 260,000 flats (excluding government-subsidized ones) were sold in 2012, surging 67 percent compared to 2011.
Figures from the Shanghai Urban Construction and Communications Commission showed that in December 2012, 1.1 million square meters of commercial apartments were sold, the highest number in 23 months.
As transaction volume expands, property and land prices were also growing. Property developers are increasingly enthusiastic about bidding for land. For example, in land auctions held in Beijing in December 2012, land prices hit a new record high. Many foreign investors that once retreated from China begin to return. Stock prices of listed Chinese real estate developers are going up.
Is this a temporary rise, or does it indicate a rebound of China’s real estate market in 2013? Will the Central Government create stricter policies to curb price hikes in the real estate market?
Leaders at the Central Economic Work Conference held in mid December 2012 decided to firmly continue macro-control of the real estate market, setting the tone for 2013.
Zhang Dawei, Director of Market Research at Beijing Centaline Property Co. Ltd., said the Central Government further enhancing regulations of the real estate market indicates that the industry, after two years of adjustment, is still far from the government’s target.
Housing prices are still much higher than what the public can afford, and market speculation has not been thoroughly uprooted, said Zhang. Policy in 2013 will focus on making prices more reasonable.
Yi Xianrong, a researcher with the Institute of Finance and Banking at the Chinese Academy of Social Sciences (CASS), said in 2013 the biggest difficulty in macro-control of the real estate market may be urbanization. The Central Economic Work Conference concluded that urbanization has the biggest potential to expand domestic demand and the country will actively and steadily push it forward as the Central Government’s focus in 2013. However, while Yi believes urbanization will stimulate investment, it doesn’t necessarily mean real estate alone can advance urbanization. It will be an enormous test for the Central Government to control the real estate market while promoting urbanization.
When urbanization becomes the growth point for the Chinese economy, enhancing regulations of the real estate market and improving housing for the low-income groups should be prioritized, thus avoiding a rush investment in real estate and preventing an overheated market from adversely affecting economic development. “Amid the process of urbanization, macro-control of the real estate market should continue to be strict,” Yi said.
Unclear tendency
The Central Government began limiting home purchase in 2010 and continued to tight regulations in 2012.
According to the Green Book of the Housing Market released by the CASS on December 13, 2012, the government only curbed rapidly growing housing prices in 2012, but did not realize the optimal goal of making prices more reasonable. “The tendency that various indicators in the housing market have risen recently merits vigilance,” says the green book.
It stressed that when housing prices in most cities rise moderately, local governments will relax their control and bring the risk of rapid price hikes once more if the Central Government does not implement effective control measures.
In those cities with real estate bubbles, the withdrawal of investment and speculators will cause the collapse of the market.
Across the country, the demand for improving housing conditions will grow stably in 2013, and growth in first-tier cities will be faster than in second- and third-tier areas, according to the green paper.
Ni Pengfei, Director of the Center for City and Competitiveness of the CASS and the green paper’s chief editor, said local governments are still highly dependent on revenues from selling land.
In 2012 China’s fiscal revenue totaled 10 trillion yuan ($1.59 trillion), of which more than 20 percent came from land sales. The Central Government’s control of the real estate market has reduced fiscal revenues of local governments. Therefore they are increasingly motivated to rescue the real estate market and implementation of tighter macro-control policies has relaxed. This may also cause a rebound of the market.
However, many people take a gloomy view. Xia Bin, a researcher at the Development Research Center of the State Council, believes the Chinese economy will still try to balance stable growth and economic restructuring in 2013, therefore a rebound should not be expected. According to Xia, the global economy is still gloomy and China’s exports are facing heavy pressure. Moreover, the government-led investment pattern is unsustainable, so economic difficulties will continue to exist. Judging from present economic growth and the real estate market, macrocontrol policies are unlikely to stop.
Independent economist Xie Guozhong thinks a recent recovery in the real estate market is not a true rebound, but the beginning of another bubble. “Sell your empty houses as soon as possible,” he writes in his blog.
Relax or tighten?
Real estate market control is sure to continue this year and it’s unlikely to be relaxed, but will it be further tightened?
Ni said that control policies of the market will face difficulties in 2013.
First, recovery in the global economy is slow, which is not good for China’s exports. Since many countries chose to ease their monetary policies, China faces growing potential of imported inflation. Moreover, international speculative capital is casting its greedy eyes on China’s real estate market.
Second, domestic economy lacks growth momentum. Except for government investment, consumption and private investment are growing weakly. If external demand falls and growth in government investment is unsustainable, macroeconomic growth will become unstable, hence affecting the macro-control of the real estate market.
Third, local governments are short of money. Since different local governments face different conditions, it is hard to formulate a singular policy.
At the National Housing and Urban-Rural Construction Conference held in Beijing on December 25, 2012, Jiang Zengwei, Minister of Housing and Urban-Rural Construction, emphasized that differentiated housing loans, taxation policies and limits on home purchases will continue in 2013 in an effort to curb speculative home purchases.
The government will continue to build up an individual housing information system. Moreover, 6 million homes for low-income groups will be built.
Zhang said the Chinese economy is now experiencing restructuring and economic growth is slowing down, hence it is unlikely for real estate regulations to change. During the country’s leadership transition in particular, regulations should be stable. To maintain stability, administrative measures such as limits on home purchases and housing loans will unlikely be relaxed in the short run.