[xtypo_dropcap]R[/xtypo_dropcap]ecent, sizable increases in Chinese land and real estate prices are believed to be a result of mistaken regime monetary policy, exacerbated by local Communist Party officials dipping their hands—often deeply—into the money pot.
Data from the China Research Index Institute (CRII) show that land and real estate prices in China have increased drastically this year. From Jan. 1 to Nov. 22, Shanghai’s land sales totaled 137 billion yuan; Beijing ranked second at just over 100 billion yuan.
Local officials have multifarious ways of extracting rents from real estate transactions, including expropriating land from farmers, helping developers gain cheap loans, manipulating supply, and simple fuzzy accounting.
Land Prices Multiplied
Although China’s official government policy has been to suppress real estate prices, it has had little effect. First Financial Daily published recent real estate data compiled by CRII that showed that although Shanghai and Beijing saw much higher sales values for land, the supply did not increase. In Shanghai, the amount of land sold was only six percent higher than the previous year. In contrast, the average price increased by 64 percent. Most of the increase is attributable to higher prices for commercial land. This year’s average sale price of commercial land is 16,000 yuan per square meter, 114 percent higher than that of last year.
In Beijing, land sales exceeded 100 billion yuan for the first time on Nov. 19. The median price for residential real estate increased 56 percent from last year, reaching 8,559 yuan per square meter. Commercial real estate saw a doubling of price over the last year, reaching 9,874 yuan per square meter.
In the northern coastal city of Dalian, land sales this year to date total 89 billion yuan, nearly triple that of last year; the price of commercial real estate also tripled, while residential real estate grew in cost by two and a half times.
According to Guangzhou Daily, in the first three quarters of 2010, land sales in 30 cities in the region totaled nearly 900 billion yuan, a 70 percent increase over the last year.
Cash Flows to Governments
Local governments are so keen to sell land because of the fat profits it brings: part of the land sale revenue goes directly into their treasury.
“Land sales constitute a large part of local governments’ revenue. This reality introduces a factor of unpredictability into the implementation of land policies,” Deputy Director Chen Baocun of the National Real Estate Managers Association said.
Guangzhou Daily quoted a developer saying, “People always say housing is expensive now. That’s because half of the price is paid to the government for land.”
In a report submitted to the National People’s Congress and Chinese People’s Political Consultative Conference last February, the National Association of Industry and Commerce said that 41.2 percent of development costs are payments to the local government for land.
Although the government has been trying to control real estate prices, Chen Donghai, a Shanghai-based scholar, said that without land financial reform, real estate prices are unlikely to drop. The huge price increase over the last year shows that real estate policies have not touched the fundamental drivers of price change.
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Land from Other People
This year, the campaign to force farmers away from their land, jokingly called “going upstairs”, has been rampant in over 20 cities and provinces in China. Through rezoning, the traditional small villages in rural areas are rapidly disappearing. Huge numbers of farmers have been forced “upstairs.”
Once the farmers go upstairs, the land where their houses stood can be categorized as farmland. Thus, the increase of farmland will lead to an increased quota for construction land, in order to maintain the ratio.
For instance, in Zhucheng city, Shandong Province, 1,249 administrative villages have been rezoned into 208 rural communities. As many as 700,000 farmers will wave goodbye to their villages and move into the newly built “communities.”
Despite that it often goes against the farmers’ will, local governments have been enthusiastic in implementing this new method of boosting revenue. In some areas, the land enclosure movement has triggered clashes and riots.
A Nov. 2 article on letfind.com.cn argued that forcing the farmers away from their native villages is a new, unjust form of exploitation that will bring dire consequences to society.
The Troubles of Farmers
BJNews reported a suicide incident in Batou village, Jiangsu Province. When it was decided to completely remove a village, the villagers were forced out of their homes and into a new community consisting of several dozen densely populated apartment buildings. To make matters worse, the money received from the government was not enough to purchase the new apartments. To protest, 35-year-old villager Xu Chuanling committed suicide. That was in October 2009. In January of this year, when forcing the farmers to move, a riot led to over 10 injuries.
Farmers are no better off once their land is seized, either, since their cost of living increases. This May, the Research Center for Labor and Social Security, CASS, conducted a survey on migrant workers showing that 80 percent did not want to give up their land and do not want to turn to the non-agricultural household registration system (a form of social control in China.)
Over-Printing of Currency
With strict governmental control of the real estate market, why is there such activity in land transactions? Song Ding, director of Shenzhen Development Institute of Tourism and Real Estate Research Center, said it is mainly because “there is too much money.”
Song held that despite the tightening of controls on the real estate market, the currency printing policy has not changed. There is roughly 8 trillion yuan floating in the market, one trillion less than last year.
On the other hand, even though the credit market has tightened, real estate developers can easily obtain financing through trust funds or personal connections.
Mysterious Accounting
It is largely unclear how the local governments are utilizing the money obtained through land enclosure.
“The Law of Land Administration of the People’s Republic of China” stipulates the usage of new construction land use fees. Thirty percent should be submitted to the central government while 70 percent should be used in local farmland development.
The reality, however, is that nobody knows exactly where the money goes.
In May 2010, China’s National Audit Office published a report on the land transfer fees usage of 11 provincial governments from 2007 to 2008. The report shows that 20.1 percent of land transfer fees, about 67 billion yuan from 11 cities, were not even included in the governmental budget.
Read the original Chinese article.
