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Let Houses Be Houses



By Li Zuojun, DRC

During the long weekend of National Day, about 20 first-tier and second-tier cities released macro-economic regulation policies on real estate market. In view of economic laws, it can be found that there is an excessive supply in China’s housing market, but the housing price simply keeps rising instead of falling. The reason does not lie in economic factors. Compared with other commodities, real estate is both a consumer commodity and also an investment commodity, with the feature of financial attribute. This attribute becomes more evident when housing price goes up, making infinite demand break the supply-demand rule in the market.

Against the backdrop of China’s economic structure transformation, housing price is co-determined by targeted GDP growth rate, money supply, interests of housing interest groups and volatility index (VIX) of hard landing. Since the end of 2015, housing price increase has been more or less linked with the implementation of some policy measures such as the large reduction of base payment, the reduction or exemption of business tax, and easy restrictions on housing purchase and loans. Besides, the policy on the reduction of unsold homes is not properly implemented in some areas, which has also spurred speculations on housing price increase.

In August 2016, the price index for newly-built houses rose respectively by 143.8%, 140.3% and 136.8% year on year in Xiamen, Hefei and Shenzhen. The CPC Central Committee and the Central Government have shown great concern to the continuous housing price hikes. As early as in July 2016, they had required to dampen property bubbles. According to their instructions, some cities adopted relevant restriction and regulation measures on a city-by-city basis and some measures became intensified in early October. It is clear that if housing price hikes run rampant, the real economy will be further suppressed and affect the supply-side reform, people’s passion for making innovations and setting up businesses will be weakened, financial and economic risks will be accumulated, and the confidence of domestic and foreign investors will be dampened.

The recent regulation policy on the restriction of housing purchase and loan mainly focuses on administrative means and the regulation and control of housing price should deal with some deep-seated issues. On the one hand, we need to speed up reform relating to the systems on money supply, land, fiscal taxation, finance and the evaluation of official performance. We need to introduce housing property tax at a proper time and increase land supply entities, in an effort to bring real estate industry back its original nature, namely people should be aware of the fact that houses are after all places for living. On the other hand, we need to carry forward the strategy of innovation-driven economy, realize economic transformation, nurture new growth drivers, and let the economy get rid of dependence on the housing market. Meanwhile, along with the reduction of overcapacity, we need to optimize and adjust the “destocking” policy and enforce the bubble-removing policy in real estate sector.


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