Summit Notebook

Exclusive outtakes from industry leaders

The visible hand

September 2, 2009

Beijing’s affordable housing projects — which account for 10 percent of the government’s huge $585 billion stimulus package, a key to propping up the crucial property market — is making fans
of low income wage earners, but has some developers seething.

Some developers see the government’s role in the market as interference in market forces that are distorting prices.

“This market is monopolised, there is no fair competition,” Feng Lun, the chairman of Beijing Vantone Real Estate Co, told the Reuters China Investment Summit.

“The government is increasingly controlling property prices,” said Feng. “Whatever price they want that’s where the price is.”

The government’s affordable housing is pulling prices down around the country, according to Feng.

The government’s motives are rooted in simple math.

Investment in residential housing made up about 10 percent of gross domestic product before the property boom turned to bust in 2008, roughly the same as the country’s huge export sector.

But critics complain the government is going beyond the tax cuts and easing of rules on mortgages to boost the sector, and indirectly encouraging large state-run firms to invest in property with the easy credit available from state banks.

Comments

It would seem that given the constant demand for new housing taking place in China on a scale that is unfathomable to anyone from almost anywhere else in the world, there would be a market for whatever type or price of housing option a developer intends to build.

That said, even if prices were not what the market would naturally be driven to according to Feng, regulations and paper walls to building would still exist in such great numbers that government backing of a project would be needed to expedite the process anyway.

 

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