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It's only a matter of time before China's housing bubble bursts
By Wu Guangqiang |
December 30, 2010, Thursday
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Print Edition
Print Edition
DESPITE a multitude of measures, many of them considered decisive and effective, taken by the central government to curb wild property prices, the overheating Chinese home market shows few signs of cooling-off.
Property developers everywhere are competing to break records for the highest land-bidding prices, hence, we see a series of "kings of the land," referring to lots acquired at the highest bid.
What's more, the fever for land acquisition is spreading from the major cities, mostly coastal ones, to medium and small cities.
The masses are puzzled.
On the one hand, the authorities spare no efforts to rein in soaring prices. The population, trusting the government, had high hopes that it would bring down the prices in a swoop. Premier Wen Jiabao has several times expressed determination to achieve this objective. On the other hand, developers have never shown a shred of willingness to cave in, and by pushing the prices so high they are protesting their commanding edge.
As a result, the longer people wait, the higher the prices. Frustrated people are even beginning to doubt that authorities have silver bullets, and scrambling to buy before prices rise further. This is a vicious cycle, making it more difficult to control prices.
The People's Daily has been bashing tudi caizheng, or "land revenue," meaning taxes and fees local governments levy on developers and other land users.
Almost everyone knows that tudi caizheng is at least partly responsible for the ever-inflating bubble.
National data shows, during 2001-2003, the total land-sales revenue was over 0.91 trillion yuan (US$137 billion), accounting for 35 per cent of total fiscal revenue. The figure for 2009 rose to 1.5 trillion yuan, equivalent to 46 per cent of the total.
This year's figure is expected to surpass 2 trillion yuan, an astronomical one.
In the breakdown, the combined land revenues for Beijing, Tianjin and Shanghai - whose housing prices are among the nation's highest - are expected to hit 400 billion yuan, 20 percent of the expected national total of 2 trillion yuan. In contrast, the combined GDP of these three cities accounts for only 11 percent of the national total.
Many other cash-strapped cities and counties are virtually running on land sales.
Since the 1990s, China's urbanization and industrialization has been dominated by local governments and features vast urbanization.
The adoption of the "revenue-sharing-scheme" in 1994 gave governments great incentive to sell as much land as possible at top prices.
While the ingenious model did spur economic development, it sowed seeds of risks.
With farm land disappearing around cities, vegetables and other food are more expensive; conflicts - many bloody and even deadly - are escalating between demolition teams and home owners.
Tudi caizheng is now dismissed as unsustainable. There are calls for reform.
The tricky question now is how we can expect insatiable officials and developers, who are usually in cahoots to boost land prices, to part with their long-savored meat.
If this craziness carries on, there will be a day when all land is sold, ending most cities's land-generated growth.
Despite wide concern over rising risks, few seriously think the bubble is likely to burst here, as it did in Japan, Ireland and now in Spain.
The latest buzzword is "rigid demand" for homes, meaning demand is endless considering the huge population and booming economy.
There seems to be a "China Myth." Is that true?
A study of the Japanese property bubble may be helpful.
In the heyday of Japanese prosperity, the land value of Tokyo alone exceeded that of the entire US. Japanese tycoons were considering buying up America. What happened later is history.
Wandering around newly completed residential areas near my home in Shenzhen - stacked with gleaming apartments, I find 80 per cent of the units are still unoccupied one year after completion. The same is true in Beijing.
Prices have made ownership impossible for most buyers. So, it's a matter of time before the bubble bursts, I think.
When a rope is strained beyond its limits, it snaps, which is common sense.
(The author is an English tutor and freelancer in Shenzhen, Guangdong Province.)
Property developers everywhere are competing to break records for the highest land-bidding prices, hence, we see a series of "kings of the land," referring to lots acquired at the highest bid.
What's more, the fever for land acquisition is spreading from the major cities, mostly coastal ones, to medium and small cities.
The masses are puzzled.
On the one hand, the authorities spare no efforts to rein in soaring prices. The population, trusting the government, had high hopes that it would bring down the prices in a swoop. Premier Wen Jiabao has several times expressed determination to achieve this objective. On the other hand, developers have never shown a shred of willingness to cave in, and by pushing the prices so high they are protesting their commanding edge.
As a result, the longer people wait, the higher the prices. Frustrated people are even beginning to doubt that authorities have silver bullets, and scrambling to buy before prices rise further. This is a vicious cycle, making it more difficult to control prices.
The People's Daily has been bashing tudi caizheng, or "land revenue," meaning taxes and fees local governments levy on developers and other land users.
Almost everyone knows that tudi caizheng is at least partly responsible for the ever-inflating bubble.
National data shows, during 2001-2003, the total land-sales revenue was over 0.91 trillion yuan (US$137 billion), accounting for 35 per cent of total fiscal revenue. The figure for 2009 rose to 1.5 trillion yuan, equivalent to 46 per cent of the total.
This year's figure is expected to surpass 2 trillion yuan, an astronomical one.
In the breakdown, the combined land revenues for Beijing, Tianjin and Shanghai - whose housing prices are among the nation's highest - are expected to hit 400 billion yuan, 20 percent of the expected national total of 2 trillion yuan. In contrast, the combined GDP of these three cities accounts for only 11 percent of the national total.
Many other cash-strapped cities and counties are virtually running on land sales.
Since the 1990s, China's urbanization and industrialization has been dominated by local governments and features vast urbanization.
The adoption of the "revenue-sharing-scheme" in 1994 gave governments great incentive to sell as much land as possible at top prices.
While the ingenious model did spur economic development, it sowed seeds of risks.
With farm land disappearing around cities, vegetables and other food are more expensive; conflicts - many bloody and even deadly - are escalating between demolition teams and home owners.
Tudi caizheng is now dismissed as unsustainable. There are calls for reform.
The tricky question now is how we can expect insatiable officials and developers, who are usually in cahoots to boost land prices, to part with their long-savored meat.
If this craziness carries on, there will be a day when all land is sold, ending most cities's land-generated growth.
Despite wide concern over rising risks, few seriously think the bubble is likely to burst here, as it did in Japan, Ireland and now in Spain.
The latest buzzword is "rigid demand" for homes, meaning demand is endless considering the huge population and booming economy.
There seems to be a "China Myth." Is that true?
A study of the Japanese property bubble may be helpful.
In the heyday of Japanese prosperity, the land value of Tokyo alone exceeded that of the entire US. Japanese tycoons were considering buying up America. What happened later is history.
Wandering around newly completed residential areas near my home in Shenzhen - stacked with gleaming apartments, I find 80 per cent of the units are still unoccupied one year after completion. The same is true in Beijing.
Prices have made ownership impossible for most buyers. So, it's a matter of time before the bubble bursts, I think.
When a rope is strained beyond its limits, it snaps, which is common sense.
(The author is an English tutor and freelancer in Shenzhen, Guangdong Province.)
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