China / Hot Issues

Cut govt intervention in property market

By Li Yang ( Updated: 2014-06-03 23:59

Local governments' intervention in the housing market cannot be corrected till the governments are entitled to find new ways, apart from selling land, to raise funds, says an article of China Business News. Excerpts:

The rise and fall of housing prices is usually decided by the demand-supply relationship in the market. But this rule does not work well in some places in China.

A city government in Guangdong province will not register in a real estate administration system if the purchasing prices are lower than 15 percent of the initial price labeled by the real estate developers.

A city government in Zhejiang province requires real estate companies to report to the local commodity price administration department if they lower the prices of their houses by more than 15 percent from the highest level they fixed before.

Both the registration limits and reporting system send a clear signal that some local governments do not want to see a sharp fall in housing prices.

These are government interventions in the market that the central authority repeatedly vows to avoid.

Some local officials are used to carrying out administrative, rather than economic and financial, means to sway the economy in the direction they desire.

In the housing market, the arbitrary and rude interventions always yield immediate effects. But, by doing so, the government distorts some fundamental rules of the market and harms the healthy development of the real estate sector, and the consumers' interests in the long run.

The decline of housing prices will directly weaken local economic growth indices, reduce local governments' revenue from selling land and even trigger a debt crisis among local governments.

But this cannot justify the governments' bold interventions, which only benefit themselves.

Transforming government from a mighty dominator of the economy to an efficient supervisor of the market entails a lot of reforms of how government functions.

Giving local governments more legal and normal means to raise funds, say, issuing government bonds, is the beginning to untie the entwined relations of China's housing and land markets, and rescue local governments from the abduction of the housing market.

Hot Topics