China housing market to stay firm

Experts rule out rise in home prices as sector is driven by supply and demand, even as benchmark land prices are to be revised

PUBLISHED : Saturday, 07 September, 2013, 12:00am
UPDATED : Saturday, 07 September, 2013, 4:57am

Mainland property prices are unlikely to rise on the back of an impending upward revision in benchmark land prices as the sector has become more market-driven, experts say.

Benchmark land prices are set by local governments and are revised every three to five years, said Kuang Weida, a professor at the School of Business at Renmin University.

"The adjustments are meant to reflect the changes in land prices in various cities. Based on the current property market trend, benchmark land prices are unlikely to be revised down," Kuang said.

Although benchmark prices serve as a reference for local governments when setting prices for land sales, revising them upwards would not significantly boost home prices, he said.

"In the short term, the property market momentum is still the most crucial determinant of land prices," he said.

According to the Ministry of Land and Resources, a number of cities including Yichun in Jiangxi province, Yancheng in Jiangsu and Qiqihar in Heilongjiang revised their benchmark prices this year.

A recent report by the China Securities Journal said some cities were planning to raise benchmark land prices in an effort to boost revenue to cope with local government debt problems. Cities in Shandong and Guangdong were also on the list, media reports said.

Yin Bocheng, the director of the real estate research centre at Fudan University, said revenue from land sales was a major source of income for local governments to deal with rising government debts.

"Although an increase in benchmark land prices will slightly buoy home prices, solving the debt problem is now a higher priority for local governments," Yin said.

Land sale revenue on the mainland for the first seven months of this year was 2.02 trillion yuan (HK$2.56 trillion), an increase of 49.4 per cent from the same period last year, the Ministry of Finance said.

As the property market became more market-driven, prices were propelled more by the demand-supply situation than benchmark land prices, Yin said.

"If local governments spend funds from land sales to build more subsidised housing, it would help ease the pressure on home prices," he said.

Zhang Hongwei, the research head at property consultancy Tospur, said an increase in benchmark land prices was to some extent linked to the jump in local government debt, but the main factor was land shortage.

"The lack of supply is still the main reason behind rising land prices in first-tier cities," Zhang said. "In some third and fourth-tier cities, land prices have remained stable despite increases in benchmark prices."

Home prices were still facing upward pressure mainly because of a supply shortage and a rise in demand, he said.

Kuang said that since land sites were mainly sold through tenders and auctions, and were hence market-driven, most transaction prices in recent years had been much higher than the benchmark prices, which were increasingly being used only as a reference.

"So an increase in benchmark prices will not have any immediate effect on home or land prices, and there's no need to panic," he said.

But he agreed that home prices were on an upswing and said he expected prices in some lower-tier cities to double in five years.

"However, in some first-tier cities such as Beijing, the bubble will burst if home prices double, and it's unlikely to happen," he said.