China has experienced – and survived – its fair share of housing booms and busts. Jim Chanos, a famous shortseller, once described the 2010 bubble as “Dubai times 1,000 – or worse”. The current fervour has caught even some local industry stalwarts by surprise. Last month, Wang Jianlin, owner of property conglomerate Wanda Group, told CNN that Chinese property was “the biggest bubble in history.”
“I don’t see a good solution to this problem,” the billionaire warned. “The government has come up with all sorts of measures – limiting purchase or credit – but none have worked.”
He has a point. Despite different measures rolled out by local governments in the past months to cool the property market, home prices in major cities have continued to climb. Shenzhen – once again – topped the ranking as the most expensive housing market. According to data from the National Bureau of Statistics, property prices in Shenzhen have risen 37% compared with a year ago.
Perhaps local governments should look to Chongqing for ideas on how to tame the volatile real estate market. While many other cities are grappling with ever-rising home prices, sales prices in the metropolis appear modest in comparison. In September, average new home prices in the western megacity went up only 0.5% year-on-year.
In fact, in the first six months of this year, home prices in major residential areas in metropolitan Chongqing went up no more than 0.6%. Small wonder then, Chongqing is one of the few places in China that has yet to impose any housing purchase restrictions.
“Chongqing’s housing market is very stable and healthy compared with [first-tier] cities like Beijing, Shanghai, Guangzhou and Shenzhen. Even the home prices in Chengdu [near Chongqing] have gone up again,” Fang Mingfu, marketing director of Jinke, one of Chongqing’s largest developers, told Shanghai Securities News.
So what sets Chongqing apart? For a start, it has pioneered land sale reforms in rural areas. Known locally as the “land ticket” programme, farmers who own idle parcels of land can auction it to developers in exchange for residential apartments in urban districts.
This market-driven system, which has been in place for several years, helps maintain a stable land supply. When prices are up, more people are keen to sell their land, increasing the supply. And because of the increase in residential supply, Chongqing’s property market is also less volatile relative to cities with chronic land shortages.
“The government now has a much better control of the land supply,” says Shanghai Securities News.
The government has also ramped up the construction of subsidised housing, which has kept the overall supply at a reasonable level. It is estimated that the Chongqing government has built public housing projects totalling 40 million square metres, which represents 22% of the municipality’s current land supply, says the Global Times.
“Chongqing’s low income families take up about 35% of its housing needs. So if their housing demands are met through affordable homes, there is less opportunity for private developers to exploit. It is an important factor in maintaining social harmony,” Jia Kang, a former official of the Ministry of Finance, told Oriental Daily.
Because Chongqing’s housing market is so stable some local developers admit to feeling left out of the current boom. One developer complains to Shanghai Securities News that while brisk demand has seen new projects in other major cities often sell out overnight (see WiC330), in Chongqing “some buyers will hold out for a few months until prices come down”.
More remarkably, Chongqing’s calmer market also comes with robust economic growth. Last year Chongqing was the fastest-growing large city in China. Credit is largely given to its 64 year-old technocrat mayor, Huang Qifan (see WiC314 for a profile) – the official who oversaw the construction of Shanghai’s Pudong financial district in the late 1990s. Huang is tipped for higher office next year. Why? Jones Lang Lasalle’s Chongqing-based analyst Sherry Li admiringly told the Financial Times: “Huang carefully controls the housing market.”
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