By Yang Hongxu (杨红旭)

Aug 22, 2011

Economic Observer Online

Original article: [Chinese] 

~The Ministry of Housing and Urban-Rural Development, or MOHURD, required all provinces to report on their progress in implementing policies aimed at reining in rapid prices rises in China's real estate market during the first six months of this year. Th ministry also released a set of five criteria to determine which second- and third-tier cities required purchase restrictions.

~Some experts had expected the restriction list to be released on Aug 20, and no later than end of Aug.

~However, Aug 20 has already passed, and we still haven’t seen the list. The crux of the problem is that local governments don’t want to restrictions on real estate sales under their administration.

~There are two key questions to analyze: Firstly, why are local governments reluctant to accept restrictions on real estate purchases? Secondly, why are local governments so disobedient to MOHURD?

~In answer to the first question: restrictions on real estate purchases will affect income from land-transfer fees and tax income from real estate, which together account for between 40% and 70% of a city’s fiscal revenue.

~In answer to the second question: real estate is easier for local governments to control. The MOHURD’s power is limited; it is at a disadvantage when it comes to direct dialogue and negotiation with local governments.

~Restrictions on property purchase are a means; the end is to stabilize house prices. If local governments are confident of achieving their targets of house price control, then who cares about the MOHURD?

~Of the five criteria released by the MOHURD, there is only one that the MOHURD is able to assess clearly - the house price index of 70 cities released by the National Bureau of Statistics, which lists cities according to house price inflation. The other four criteria are controlled by local governments. The MOHURD hopes that some cities carry out the restrictions, but it doesn’t have the power to impose them.

~In fact, the updated list of cities applying restrictions on property purchases might be delayed until September, and will probably include no more than twenty new cities, mostly surrounding metropolises in the eastern region.