Chinese Govt Warn on Land Hoarding
With debate over the impact of China’s real estate bubble leading to a stock exchange ‘flu’ this week, moves are afoot as:
… today’s Beijing Youth Daily reports that the Ministry of Land and Resources recently released a list of 18 land development projects nationwide including five in Beijing that involved developers failing to develop their land timely.
The Ministry stated that it would urge developers to start development of the idle land. Those who failed to develop one year after bidding for development rights will face fines of up to 20 percent of the amount of their bids. If they still leave the land idle after two years, the land will be taken back by the government.
The logical conclusion from this statement is that land hoarding is ok if it is constantly rotated every 10 – 11 months. Whispers are that there are hoards of vacant apartments. These too are a loophole for speculative largesse. It seems that the CCP is willing to allow another class of mandarins or gentry to evolve:
The issue of land speculation has reached such zenith’s that influential blogger Patrick Chovanec reports:
The (TV) series “Dwelling Narrowness”, which aired on Beijing and Shanghai TV, focuses on the difficulties facing average Chinese people in an environment of spiraling apartment prices and official corruption.
The show was quickly pulled from the public airwaves for recensoring.
Wiki describes the past influence of the scholar – gentry:
Now known simply as landowners, they were criticized for demanding and collecting high rent from their tenants during the republican period. Many organized violent gangs to enforce their rule. They were frequent targets of the communists who were able to rally much of the peasant population through their promises of agrarian reform and land redistribution. After the People’s Republic of China was established, many landlords were executed by class struggle trials and the class as a whole was abolished. Former members were stigmatized and faced persecution which reached its heights during the Cultural Revolution. This persecution ended with the advent of Chinese economic reform under Deng Xiaoping.
In 2006, the Chinese rich list found that:
Seven of the 10 richest are property developers.
What would Sun Yet Sen say? He proposed the capturing of the windfall gains that accrue to property owners from the public’s productivity. This was a core issue in Sun Yat-Sen’s Three Principles of the People. Read more on Sun Yat-Sen’s influence.
Patrick Chovanec discussed the bubble on China Radio with the following key points:
- The main driver of mounting housing prices in China isn’t short-term speculation (“flipping”) but longer-term stockpiling of empty apartments as a “store of value,” like gold.
- If “flipping” were the main problem, we’d see a much more active secondary market. In fact, China’s secondary market is quite weak, suggesting that new housing is being stockpiled off-market and not being priced.
- This phenomenon is partly due to a limited range of other investment options, and partly due to low holding costs (my empahasis), particularly the absence of an annual property holding tax. Other holding costs, such as maintenance fees, can often be minimized or avoided entirely.
- Because it addresses the wrong problem, the government’s new tax on speculative “flipping” is unlikely to have much impact, and may actually make things worse by increasing the incentive to holder vacant property longer.
- Local governments in China depend on land sales for as much as 40% of their revenue, so have a keen interest in keeping prices high — in effect, a kind of “hidden tax.” The point of an annual property holding tax is not to increase the overall tax burden, but replace this revenue stream with a more rational and sustainable structure that rewards productivity.
- The so-called “affordability ratio” in China is sky-high. As a result, the unaffordable price of housing is already becoming a hot social issue in China
The flipping issue could be debated re this quote, which some could see as a sign that those ‘in-the-know’ are getting out:
Dec. 21, 2009 (China Knowledge) – Beijing’s second-hand apartment transaction volume was 19,861 units in the first half of this month, an amount 56.6% higher than the 12,680 units that changed hands in the same period of last month, sources reported. About 1.88 million square meters of second-hand apartments changed hands, compared with 1.19 million in the first half of October.
Sun Yat-Sen would be fuming at the formation of a new generation of gentry. As Patrick describes above, the ‘flipping tax’ (which seems to be akin to our stamp duties), impedes the turnover of property. Turnover taxes like this do accentuate hoarding for greater periods until the desired profit is delivered.
A Land Value Tax or Site Rental on all land would ensure that both flipping and hoarding are discouraged.
Perhaps 2010 will be defined by the economic leadership of China, especially as Professor Michael Hudson has recently visited China and inspired deeper thinking on this core issue.