China Scrambles to Cool Overheated Real Estate Market as Housing Bubble Continues to Grow
The Chinese government went all out during the first half of 2018 to cool an overheated real estate market.
Major cities in China have issued regulations for their local real estate markets more than 260 times through July of this year, according to data from Centaline Property Agency, one of the largest property agencies in Hong Kong. That’s an all-time high and marks an 80 percent increase in frequency compared to the same period in 2017.
In July alone, more than 60 cities announced more than 70 revised sets of real estate regulatory policies.
Chinese cities have sought to keep housing prices from skyrocketing by limiting the number of properties one can purchase and sell, raising the minimum down-payment ratio for homebuyers, and boosting the time period between a purchase and when a unit can be then listed on the market for resale.
The Chinese Communist Party (CCP) has made it a political priority to “resolutely contain the rise of housing prices,” as discussed during a meeting of the Party’s powerful 25-member Politburo on July 31, according to state-run media Xinhua.
While prices in the real estate markets of some first- and second-tier cities appear to have leveled off, prices in most third- and fourth-tier cities continue to soar.
In June, among China’s designated 70 large and medium-sized cities, 63 experienced a price increase for newly built commodity housing units, or privately developed housing on leased land, compared with last year, according to official data released by China’s National Bureau of Statistics. Prices for new commodity housing and “second-hand housing”—units previously owned that are now on the market for sale—in 31 second-tier cities also increased, by 6.3 percent and 4.6 percent, respectively, in June.
Having stepped up regulatory efforts in July, Beijing is likely to impose even more intensified restrictions on real estate in the latter half of the year, Zhang Dawei, chief analyst with Centaline Property, told Xinhua in a July 27 report.
The Chinese government is scrambling to control the real-estate market, as the Chinese economy heavily relies on real-estate investments for growth.
China’s property market is worth around $22 trillion, approximately 1.8 times the size of GDP (Gross Domestic Product) in 2017, according to an article published by U.S. investment firm Pimco on its website in June.
Ever since it was officially declared as the “pillar industry that pulls the growth of China’s economy” by the State Council in 2003, the real-estate industry has been the lifeblood of the entire Chinese economy. City governments also heavily rely on land-grant premiums and land-tax revenue as their primary source of local fiscal income.
This fiscal strategy of operating real estate as a money-making machine for the government, commonly referred to as “land finance” in China, has inextricably linked the survival of the real estate market to the Chinese regime’s.
In recent years, however, the Chinese real estate market has become overheated and is increasingly spinning out of control, as evidenced by soaring housing prices and people’s frenzy in buying properties.
Economists have long predicted that China’s real-estate bubble will soon burst. But a collapse of the property market would devastate the entire economy—and potentially threaten the Communist regime, too. An economic crisis would lead the public to question the regime’s legitimacy.
So the Chinese regime has sought to artificially keep the market afloat, with local governments supplying land to the market, banks issuing large amount of loans, and central authorities placing specific purchasing, sales, and pricing limits. But this has only further compounded the crisis.
Meanwhile, the regime seeks to sustain a prosperous, lucrative real-estate market in order to maintain a high GDP. Policies, so far, have only aimed to “contain” prices, not lower them. Hence, ordinary citizens continue to find housing prohibitively expensive.