Beijing needs refocus on climbing property prices

While the international media lamented the weak Copenhagen Accord and tried to pin blame, the mainland media have focused on something much more mundane at home - soaring property prices. The word 'crazy' has been frequently used to describe the excessive price rises in many mainland cities as economists and even property developers have sounded alarms about the ballooning property bubble. Last month, a nationwide benchmark measuring property prices in 70 medium-sized and large cities rose 5.7 per cent year on year, the fastest rate in 16 months and the sixth consecutive monthly increase. The latest survey from the People's Bank of China shows that 67.2 per cent of the respondents in urban areas say property prices are high and unacceptable, leading to worries that soaring prices could become a serious source of social discontent if left unchecked. After sitting on the sidelines for months, the central government finally began to act last week and vowed to undertake a set of measures, including land-use policies and taxation, to curb the rise. While the share prices of property developers in Hong Kong and on the mainland fell sharply on Friday after the government moves, those measures met with scepticism among mainlanders and even snickering from the developers, who predicted that prices would continue to rise next year. With good reason. Mainlanders have seen similar measures taken to tackle soaring property prices in the past, and they are often futile - after brief dips, prices tend to rebound sharply and get even higher. Inevitably, the state media have targeted greedy developers, unscrupulous speculators, and even overseas investors, who are accused of using illicit channels to buy mainland properties to bet on the rise of the yuan. In particular, much has been written about how prices of the top-end luxury property markets in Beijing or Shanghai keep setting records, as if they were the benchmark for ordinary mainlanders. There is little doubt that calls will mount for measures to crack down on those three groups through taxation and other measures, probably with the focus on the luxury end. The last time prices spun out of control, the authorities even imposed stringent rules preventing foreign nationals from buying mainland properties, as if they were the biggest problem. But the reality is that the biggest speculators and culprits behind the soaring property prices are the mainland authorities themselves. After all, the government controls land, regulates the supply and owns most of the banks that provide the credit to developers and buyers. It even owns some of the most aggressive property developers, which are accused of constantly paying record amounts for land and jacking up prices. According to mainland law, the government controls all the land and 70-year land-use rights can be sold for residential purposes. Currently, local authorities sell land-use rights through so-called public auctions. That is considered progress from when officials sold those rights through privately agreed prices, which led to rampant corruption. As land-sale revenue can be fully retained by the local authorities - unlike other revenue, which is shared with the central government - this has provided a strong incentive for the local officials to fetch the highest possible prices for land sales. The developers that bid most aggressively at land auctions tend to be the state-owned ones, which are flush with government money and have easy access to bank loans. For instance, the property arm of the Poly Group, one of the mainland's leading conglomerates, with a military background, paid a record 3.04 billion yuan (HK$3.44 billion) last week for a piece of land in Beijing, with the floor price reaching 23,506 yuan per square metre. This means the sale price of the finished flats is expected to reach between 40,000 and 50,000 yuan per square metre, compared with the average price of about 25,000 to 30,000 yuan for secondary flats nearby. Many cynics see another reason for the aggressive nature of the state-owned property developers: it's government money they spend, so who cares? Most of the bigger mainland banks may be listed at home and in Hong Kong, but the government is the ultimate majority shareholder. Official data shows that about one-sixth of more than 9 trillion yuan worth of new loans went into the property sector in the first 11 months, including mortgages to home buyers and lending to developers. All this means that officials must look at themselves in the mirror before blaming the mess on speculators, developers and even the inflow of hot money. In the short term, the credit tightening and other taxation measures may help slow down the rise, but just a bit. In the long term, however, mainland authorities must review and reform property policies. For a start, they must reform the land-sale policies and ensure that local authorities do not sell land for maximum profit. More important, the government must have a clearer understanding of its role and responsibilities - which is to focus on providing enough land at lower costs to build enough affordable housing for the poor. It should increase the frequency of land sales to accommodate demand from the bourgeoning middle class. But it should not waste its energy focusing its wrath on the top-end luxury property markets, which sell for 100,000 yuan or more per square metre. After all, those flats are marketed to the filthy rich, and they have the money to burn.