Developer, insider and critic has his say on crackdown

PUBLISHED : Saturday, 24 April, 2010, 12:00am
UPDATED : Saturday, 24 April, 2010, 12:00am

Rarely has a State Council directive been so strongly worded. You could almost hear the banging on the table and the shaking of teacups in the background. The question is: will it make a fundamental change to the country's housing market?

I am not going to repeat myself here. Instead, I will pass the microphone to Ren Zhiqiang, the chief executive of state-owned developer Hua Yuan Group. He is not just an insider. He is also a critic. Below are excerpts from Ren's commentary 'This is just the beginning', posted on his blog on Wednesday.

'The truth is the government is not going to give up unless [housing] prices head south ... It is all about politics ... If the upcoming details are more draconian, then a temporary adjustment may turn into paranoia.

'But the market is not going to collapse because the fundamentals of our economy have not changed ... When prices have reached the 'target' level or the market becomes paranoid, the government will reverse the policy.

'The real issue is that suppressed demand will eventually push the market into a serious imbalance and push prices up again. When this happens, is the government going to interfere again?'

Obviously, Ren has zero faith in the new policy of building the so-called healthy property market. Here is why.

First, the regulator.

'The Minister of Housing and Urban-Rural Development has complained of his limited power in managing property prices. Now, his power has been significantly increased,' Ren wrote.

'Among its 10 new tools, the ministry has the power to examine and decide which provincial governments have done well in managing property prices; the power to design annual plans and budgets for subsidised housing; the power to decide who is eligible for the property business, and the power to direct planning, construction and pre-sale of flats.

'[The State Council] has also given local governments and respective ministries great power to interfere in the market. For instance, the Ministry of Land Resources will set the price, number and size of flats in any land sale contract.

'Aren't we back to the days of a planned economy? Who can predict market conditions at the time of a land sale?

'Every attempt by the government to manage the market is no more than a redistribution of power among government departments and a new door to corruption.'

Second, the demand.

'The measures focus largely on killing speculation. It's alright to tighten credit and increase speculators' costs so that they have to bet with their own money, but the measures do not spare first-time buyers.

'Requiring tax and social security payment receipts [from people applying for mortgages] will not stop the rich from moving into the cities.

'They don't need mortgages anyway ... The only people that will be barred from owning a private home are middle-income families who have no household registration and those who have to rely on bank mortgages. This is a typical case of closing all the windows and suffocating everybody in order to keep the flies out. In the name of removing 'unreasonable' demand, all types of demand have been suppressed.'

Third, the land supply. 'The rise in property prices is a result of serious shortages. All the indicators - low investment growth, negative growth in houses under construction and land supply - have led to sky-high property prices this year.

'A look at a chart of land supply shows that ever since the credit tightening in 2003, land supply has not increased. The only exception was 2007.

'Now, the government is finally addressing this issue. It talks about increasing residential land supply, but will the land be for private houses or public houses? There is no direction.

'It said the land auction system will be improved, but without an increase in land for private housing ... a low land price can still end with high house prices. The government is trying to set house prices through future land sale contracts. With stringent credit tightening for developers and consumers, controls on overseas demand and the uncertainty of tax increases, does anyone seriously expect the 'stupid' developers to blindly increase their investment and therefore supply of houses?

'In 2008, we witnessed a government crackdown slowing investment and construction. The measures we are now seeing are even more stringent. Anyone looking for a speedy increase in house supply in these circumstances must be drunk.'

Fourth, public housing.

'Okay, they talk about increasing subsidised houses again. That was the state policy back in 1998, yet we waited until 2007 to see the first paper on the building of a public housing system. Regrettably, there are no specifics about who should be entitled and entitled to what? The public could end up seeing those who are not in need enjoying the subsidy. We need a clear definition on who and how.

'We also need a law that states the percentage of land sale proceeds that have to be put into subsidised housing.'

Finally, Ren's conclusion.

'Instead of addressing the right issues, the directive goes for measures that are clearly against the law. Which law says property speculation is illegal? Which law bans state-owned enterprises from the property market?

'Perhaps, the administration is upset at the rise in house prices or the record land auction prices paid by the SOEs. Perhaps, they considered it a loss of face. So in the great chaos, the State Council has released these 'unscrupulous' measures that have no grounding in law or research.

'Will the new policy change the game? Well, it depends on how persistent the government is. Are they going to retreat when prices go down or stick with this planned-economy approach?

'Will the new policy destroy the market and push China into a Japan-like coma?

'I don't think so. The government may be very keen to be seen to be doing something, but it would never allow the economy to go into long-term recession. Never ever.'