China’s real estate market has become a battlefield for central and local government warring over policy measures.
Over the past six months local governments have introduced various policies to stimulate real estate markets, which they see as a source of much-needed funds. This is in contrast to efforts by the central government, which in 2010 implemented controls to cool the market, something many fear was a dangerous bubble in the making.
Local governments pay lip service to the central governments curbs, but at the same time have made efforts to boost the market. This is a sign that they see the need to balance central government policies with finance needs.
On July 16, Shenzhen, the bustling special economic zone in southern China, said home buyers could get loans of up to 800,000 yuan ($125,786) from the city’s Housing Fund Management centre and enjoy interest rates lower than what commercial banks offer.
Three days later two ministries said there would be no relaxation of housing control policies and governments at all levels should firmly combat rebounding home prices. Then in late July, the State Council, the country’s cabinet, sent eight teams to 16 provinces and cities to supervise the implementation of its housing purchase and mortgage restrictions.
To some degree, there are signs local governments are prevailing in this battle of wits. Housing prices in 70 out of 100 cities nationwide jumped in July, data from the China Index Academy (CIA), a property research organisation in Beijing, showed.
“In 2011, it was the battle between developers and central government,” said the vice president of a large real estate company in Shanghai who declined to be named. “Now it is a fight between the central and local governments. We cannot say spring is coming, but we see hope.”
However, it seems the war is far from over. In the midst of the rebounding market, the central government is mulling new curbs, a source close to top decision-makers says.
Local governments are clearly struggling with their finances, especially because of a decline in land transfer fees, revenue local governments receive by selling land to developers.
In the first half of the year, the amount raked in for land transfer fees in 300 cities was 652.6 billion yuan USDCNY +0.05 percent, down 38 percent compared to the same period last year, CIA data shows. In Beijing alone, the first half figure was 14.5 billion yuan, down 55.65 percent year-on-year.
Cities and municipalities in less-developed regions such as Tianjin, Chongqing, Chengdu, Nanjing and Hangzhou are most willing to introduce policies to rejuvenate the market because they are the most dependent on these revenues, said a report by the World Union Properties, a real estate consulting firm in Shenzhen.
In 2009, at the height of the housing market, these cities propelled the increase in home transactions and development. But since Beijing launched its housing curbs the next year, land transfer revenues in these cities have fallen off, said Zhou Yao, strategy director at Hong Kong property agency Centaline Property. Little accountability
This year, cities around the country have made attempts – many successful – to warm their local property markets.
In February, the housing regulatory bureau of Shanghai said it would allow non-native residents who have lived in the city for three years to buy a second home. Days later the city government killed the idea, but those in the city who want sales to increase have been able to find ways.
“There were many loopholes in Shanghai’s housing controls,” a source from a real estate agency in Shanghai said. “When the market was down, local authorities were less strict about closing the loopholes that allowed for increased transaction volume.”
In July, Nanjing, the capital of the eastern province of Jiangsu, put 51 plots on the market, an indication the city was ready to boost its property market on its own. Then, on July 23, it allowed first-time buyers to get low-interest loans from the city’s Housing Fund Management Centre.
More blatant was the approach of Yiwu, in southeastern China’s Zhejiang Province. Media reports in August said officials in the city had simply suspended the central government’s housing curbs for seven months.
The Yiwu government responded by saying the controls would continue to be implemented and the Zhejiang government said it would hold those responsible accountable, but the message was clear: the local need for funding was overriding a desire to heed the central government.
And the skirmishes continue. The China Academy of Social Sciences said in a report on July 23 that local governments that introduced policies that counteract Beijing’s curbs needed to be held accountable.
A source close to top decision-makers indicated the central government would stick to its guns. “The real estate industry involves many aspects in terms of land transfer revenue and the relationship between the central and local governments. In the future, the central government is more likely to use supervision teams to monitor local governments.”