Date
26 July 2017
China has realized that given the different market situations in various cities, it cannot adopt a 'one rule fits all' approach toward property controls. Photo: Bloomberg
China has realized that given the different market situations in various cities, it cannot adopt a 'one rule fits all' approach toward property controls. Photo: Bloomberg

Why China must stick to differentiated property policies

In regulating the property market, China has ended the “one rule fits all” approach and moved to differentiated policies and controls in various regions. The new approach has been applauded by property tycoons.

“Houses are for living in, not for speculating with,” authorities said during the Central Economic Work Conference in December. The Government Work Report unveiled at the annual “Two Sessions” this month suggests that the differentiated property curbs model adopted last year will continue in 2017. Local governments will play a bigger role in curbing the red-hot property market.

Xu Jiayin, founder of Evergrand Group (03333.HK) and a member of Chinese People’s Political Consultative Conference (CPPCC), has praised the differentiated control policies. He has good reason to do so, as such policy approach will benefit property developers.

Housing prices in China’s first- and second-tier cities have been skyrocketing in recent years, partly due to an influx of migrant workers into the cities. Resilient demand coupled with limited land supply has led to prices shooting up. Given this, authorities need to strictly implement home purchase restriction measures to cool off demand in the big cities.

By contrast, third- and fourth-tier cities have ample land supply and limited number of migrant workers. But local governments there had ramped up land sales as they sought to generate more revenues. That has led to excessive housing supply. Amid this situation, it makes sense for those cities to unveil supportive measures to gradually clear their housing stock.

High prices and home purchase restrictions will help cap population growth in first-tier cities. In the case of smaller cities, stable home prices will help facilitate local economic development.

As many property developers have built up huge land banks in lower-tier cities, it is in their interest that the market is kept stable.

When it comes to first-tier cities, most developers, however, have limited land banks. If they want to win new land sites, they need to put in very high bids, which is a fairly risky proposition. Given this, it’s not a bad thing if authorities move to cool off the market.

Central authorities have been stressing that their priority is market stability, as it would benefit both local governments as well as property developers.

Differentiated policy measures have actually helped the housing sector.

The property sector represented 6.5 percent of China’s GDP last year, remaining a core pillar of the nation’s economy.

To achieve broader macro goals, authorities need to persist with a prudent and flexible policy approach toward the sector.

This article appeared in the Hong Kong Economic Journal on March 10.

Translation by Julie Zhu

[Chinese version 中文版]

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JZ/DY/RC

HKEJ columnist

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