Urban renovation funds distort realty markets in small cities

ACCORDING TO REPORTS, the central government will soon tighten up its control over the urban renovation funds provided to cities. Beijing News commented on Tuesday:

In most third-and fourth-tier cities, where the supply of houses exceeds demand, local governments tend to give money directly to the residents in areas to be renovated, so they can buy new properties themselves.

The money comes from central government loans that local governments pay back with some of the income they receive from selling the land to real estate developers, where shanty towns are demolished. And the residents spend most of the compensation money buying new houses elsewhere in the city.