Opinion / Xin Zhiming

Government's role in real estate boom

By Xin Zhiming ( Updated: 2014-10-28 17:00

Although there is no evidence he has got any tips from insiders, many still believe that his successful forecasts have something to do with his government connections, because the country’s real estate sector is highly influenced by government policies.

Unlike in those developed market economies, China has used various market-intervention policies, such as ordering how many units of apartments one can own, to try to balance supply and demand. But they seem to have failed to work.

In the past decade, policymakers had repeatedly vowed to tackle the problem of surging home prices, but they had continued to soar. In some cities, prices of some real estate projects had risen by as much as 10 times.

It is in part a result of the unleashing of China’s suppressed demand for commercial housing after 1998, when the country liberalized the real estate market. Before that year, housing was a public welfare item and not allowed to be traded freely.

The relentless home price rises are also because revenues of the local governments are highly dependent on real estate-related taxes and land sales and, as a result, many central government policies aimed to keep home prices from rising fast have been distorted in implementation by the local governments.

Even the central government is suspected to be half-hearted in controlling home prices, because the booming real estate market leads to prosperity of many other sectors, such as building materials and household appliances, ultimately contributing to the swelling of fixed-asset investment and consumption, both important components of GDP.

For those who cannot afford an apartment, it is easy for them to ignore the innate forces driving up the prices and vent their anger at real estate developers, such as Ren, accusing them of being without a heart and of rigging prices.

In a sense, Ren has become a scapegoat for policymakers’ failure to control home prices.

From 2012, China started to accelerate the building of low-priced subsidized public housing to cater to demand of low-income earners. If the measure could have been taken earlier, the market would have become more stable and the public would have less complaint — and Ren would have been less hated.

In recent interviews, Ren said that there have been growing risks in the real estate sector, indicating that price corrections could continue after prices began to fall early this year. If home prices really fall as he forecasts, will his public image improve?

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