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China's housing market has come to a crossroads. While there is a high expectation that housing should be more affordable, with rapid urbanization increasing the demand for housing the real challenge is the provision of housing for the medium and low-income population. The issue of housing is thus being hotly discussed in the ongoing annual meetings of the National People's Congress and the Chinese People's Political Consultative Conference.
Dwindling land revenues have exerted great pressure on the local fiscal base, which has been so far heavily reliant on land sales. The income of land sales in Shanghai dropped by 70 percent year-on-year in January and in Guangzhou it fell by 90 percent. Even Beijing's income from land sales was only one-third that of last year. Meanwhile the debt-burdened local investment platform is facing the maturity of loans, which is increasing the financial pressure on local governments.
Faced with this pressure, local governments under the disguise of "policy fine-tuning" have tried to introduce some de facto relaxation of the central government's tough property restrictions. These have been immediately denounced by the central government, which is determined to maintain control and deflate the real estate bubble.