At Center of China’s Real Estate Problems: The Communist Party

By Gao Zitan, Epoch Times
December 14, 2010 9:27 pm Last Updated: October 1, 2015 6:13 pm

Miniature model of a housing complex in China.  (Getty Images)
Miniature model of a housing complex in China. (Getty Images)
Housing prices in China are still on the rise, and owning a home is far from affordable for most Chinese. A recent report hints at the extent of the problem, including the startling fact that 85 percent of city residents who need a new house cannot afford one.

It all hinges on China’s Leninist-corporatist political economy, according to prominent economist He Qinglian. The Chinese Communist Party (CCP) often takes centre-stage in all major strategic sectors in China, and real estate is no exception.

A situation has arisen whereby those affiliated with the Party benefit from favorable policies, while the majority is left out in the cold.

The Chinese Academy of Social Sciences’ (CASS) “Blue Book,” an annual report on social conditions in China, points out that the housing price has increased 15 percent this year.

They report that between Nov. 29 and Dec. 5 average house prices hit a record high, at 23,489 yuan per meter square (US$321 per square foot).

The China Index Academy, a large property research institute, says that in November this year the average housing price in 100 cities was 8,487 yuan per meter square (US$116 per square foot), a 0.82 percent increase from October. In Beijing and Shanghai the average was US$212 per square foot, a 0.41 percent increase from October and a 34.2 percent increase compared to the same period last year.

The continued rise is puzzling, given the housing price control measures the regime has implemented. Under unprecedentedly strict government management, why is the price of housing in China still rising like mad?

To answer that He Qinglian pointed at the CCP, during an interview with The Epoch Times.

For example, a recent survey of low-ranking officials in Shanghai showed that some of them owned 5 or 6 houses, the majority between 10 and 20, and that some had as many as forty-odd homes. “The main house buyers in China are this group of people,” Ms. He said.

According to Ms. He, the communist regime is the driving force behind China’s constantly rising housing price increase, for several reasons. Firstly, it is the only source of land; secondly, the central Party’s income, especially from local governments, depends on land and housing sales.

Breaking this monopoly would require a free and competitive market, and for the Party to relinquish control of real estate. Ms. He does not think that is going to happen any time soon.

The Party makes real estate policy in China, and most real estate transactions involve individuals with some connection to the regime, Ms. He says. Money invested in real estate, including loans for developers and others, primarily come from state-owned banks—and the state will decide how easy it is to get a loan.

Some dubious explanations for the distorted prices have been proffered by Chinese real estate experts, Ms. He says, including shifting the blame to foreign investment. “It’s always either the U.S. doing tricks, George Soros manipulating capital, or overseas anti-China forces doing something or other,” she said. “The Chinese regime is always looking for a scapegoat.”

It has been ten years since many of the instruments to monitor the real estate market in China have been of real relevance, Ms. He said, including the price-performance ratio, oversupply rate, and the time it takes to buy a house.

Real estate in China rises and falls at the hands of the government, she said, because it supplies the land, provides funds to manipulate the market, and provides capital for land development. Party officials buy houses for half their market value, and real estate companies kick those costs along to regular consumers.

He Qinglian was not optimistic about a recently proposed real estate tax. The proposal was that no tax would be imposed on an individual’s first two houses, but for successive homes, a tax would have to be paid. “Is the government going to put a knife into its own neck?” Ms. He asks. “I don’t believe it can behave itself when making policies that will chop off its hands and legs.”

On the other hand, she thinks if the Party got out of the real estate market, market forces would correct themselves. “As long as the Chinese communist regime is in power, the government will be the root of the problem,” she said.

Read the original Chinese article.