It is an acknowledged fact that local governments in China rely on land sales to keep their finances afloat. Even so, it may come as a surprise to learn that there are at least four cities where the income from land sales has constantly been higher than other fiscal revenues combined.
Shanghai-based realty consulting firm Tospur has examined 45 cities across the nation which restrict home purchases by non-locals. Using 2013 statistics, the study found that Hangzhou, Foshan, Nanjing and Changsha are most dependent on land sales income.
Dividing land sales income by other government revenues, the report has calculated the land income dependency rate for all the 45 cities. Hangzhou is in the top spot with a ratio of 156 percent. The city, the capital of the eastern Zhejiang province and once a barometer of China’s red-hot home market, raked in 147.8 billion yuan (US$23.7 billion) in breakneck land sales last year. Meanwhile, the municipal government’s revenues from other sources came in at just 94.52 billion yuan.
Elsewhere, the land income dependency rate for Foshan, a major industrial powerhouse in Guangdong, stood at 148 percent. In the case of Nanjing, it was 110 percent and in Changsha the figure was 105 percent.
There are eight cities — Sanya (96 percent), Hefei (96 percent), Fuzhou (90 percent), Kunming (90 percent), Jinan (89 percent), Xuzhou (88 percent), Ningbo (85 percent) and Wenzhou (83 percent) — with ratios higher than the 80 percent threshold — regarded by the report as the alarm level.
The figures for Beijing, Shanghai, Guangzhou and Shenzhen are 50 percent, 55 percent, 61 percent and 27 percent respectively.
Given the high reliance on land sales income, it’s understandable that when the realty market begins to show signs of a downtrend with tepid transactions, some cities seek to scrap home purchase restrictions or come up with workarounds that aim to render the central government’s curbs toothless.
Data from the National Statistics Bureau show that developers bought a total of 81.3 million square meters of land during the first four months to April, down 7.9 percent over the same period last year. Realty agency Centaline noted in a monthly report that among the nation’s top 20 developers as measured by annual sales volume, only Wanda bought a site in Dongguan so far this May while the rest of the members of the elite club stayed away.
This is in stark contrast to the situation a year ago when the top 20 developers splurged 45.58 billion yuan in a land shopping spree.
Perhaps municipal cadres are more concerned about the slump than developers, as many local governments will this year have to enter the peak period to pay back their mounting debts. Without the easy money from land sales, they will find it tough to meet their obligations. Not to mention the outlays involved in numerous infrastructure projects that also hinge substantially on the land income.
Media reports say Foshan, Hangzhou, Ningbo, Wenzhou, Fuzhou, Changsha and many others have been mulling various measures like household registration quotas for non-local buyers and flexible mortgage loans for second-time buyers, hoping to boost home sales and rejuvenate the land market.
Observers point out that the policy loosening will never be announced in a straight forward way, as local cadres would not want to be seen defying the central government’s policy stance. They will instead adopt a subtle strategy to walk a fine line between implementing Beijing’s policies and securing their own vested interests.
Meanwhile, the governments can take comfort from the latest comments from Beijing. State news agency Xinhua quoted National Development and Reform Commission director Xu Shaoshi as saying that the four top-notch municipalities should continue to implement to the full extent the purchase restrictions while other cities can be more flexible in formulating their future measures.
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